global - eva airways corporation 2002 annual report · 2020. 2. 19. · events related to 9/11 and...
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EVA AIRWAYS CORPORATION2002 ANNUAL REPORT
1
Financial and Operating Highlights .....................2To Shareholders .....................................................3
2002 in Review...........................................................................32003 Preview .............................................................................4
The Company .........................................................5Major Milestones ........................................................................6Calendar of 2002 Events .............................................................7Directors, Supervisors and Principal Officers .................................9Capital and Shares ...................................................................10EVA Air People .........................................................................13The Fleet...................................................................................15The Market ...............................................................................16The Network .............................................................................22 Principal Subsidiaries ................................................................23
Financial and Operating Statistics .....................24Financial Results........................................................................24Operating Results......................................................................27
Financial Statements ...........................................29Auditors' Report........................................................................29Balance Sheets..........................................................................30Statements of Income.................................................................31Statements of Changes in Stockholders' Equity.............................32Statements of Cash Flows...........................................................34Notes to the Accounts ................................................................36
2
2002 2001 %change
Financial
Income Statement
Revenue NT$ Thousand 64,577,407 52,451,455 23.1%
Passenger revenue NT$ Thousand 32,514,264 29,550,225 10.0%
Cargo revenue NT$ Thousand 27,518,537 20,642,751 33.3%
Total costs NT$ Thousand 59,519,817 52,122,724 14.2%
Operating profit NT$ Thousand 5,057,590 328,731 1,438.5%
Net profit NT$ Thousand 2,637,479 (3,174,621) -183.1%
EPS NT$ 1.19 -1.44 NM
Profit margin % 7.8% 0.6% 7.2ppt
Balance Sheet
Total assets NT$ Thousand 115,513,173 113,401,949 1.9%
Total liabilities NT$ Thousand 80,467,152 83,736,459 -3.9%
Total equity NT$ Thousand 35,046,021 29,665,490 18.1%
Total capital NT$ Thousand 24,250,000 22,050,000 10.0%
Book value per share NT$ 14.45 13.45 7.4%
Debt ratio % 69.7% 73.8% -4.1ppt
Operating
Overall capacity Thousand 7,757,530 6,791,113 14.2%
Overall traffic Thousand 5,882,083 4,878,830 20.6%
Overall load factor % 75.8% 71.8% 5.5%
Overall yield NT$ 10.21 10.28 -0.7%
Passenger capacity Thousand 25,184,316 23,728,056 6.1%
Passenger traffic Thousand 19,508,449 17,776,718 9.7%
Passengers carried No. of passengers 4,793,847 4,178,619 14.7%
Passenger load factor % 77.5% 74.9% 2.6ppt
Passenger yield NT$ 1.67 1.66 0.6%
Cargo capacity Thousand 5,490,942 4,655,587 17.9%
Cargo traffic Thousand 4,126,323 3,278,925 25.8%
Cargo carried Tons 619,435 486,915 27.2%
Cargo load factor % 75.1% 70.4% 4.7ppt
Cargo yield NT$ 6.67 6.3 5.9%
Unit cost NT$ 7.67 7.67 0.0%
Break-even load factor % 75.1% 74.6% 0.5ppt
Number of employees 4,394 4,552 -3.5%
Capacity per employee Thousand 1,765 1,492 18.3%
Traffic per employee Thousand 1,339 1,072 24.9%
Revenue per employee NT$ Thousand 14,697 11,523 27.5%
Financial and Operating Highlights
2002 in Review
Events related to 9/11 and the global economicdownturn continued to affect the airline industry in2002. To protect against further business losses andreduce costs, EVA adopted a number of measures,including flight and workforce reductions. Weadjusted schedules and redeployed aircraft inaccordance with market and peak/off-peak seasonaldemands. We introduced other policies thatenabled us to maximize profits with limited outlays.
And at the same time, steady growth and theharbor strike on the U.S. West Coast created a peakdemand for cargo capacity. With this combinationof events and strategies, we built on our marketstrengths and worked highly ef fectively indispatching our flights. We generated higherincome and met our fiscal forecast.
Our total annual audited revenue amounted toNT$64.5 billion, an increase of NT$12.4 billion andup 23% over 2001. Net income of NT$2.6 billionmet our targeted fiscal forecast.
In response to the improved economic outlook,EVA launched service to Phnom Penh on January 19and increased flights on routes to Tokyo and HongKong in April and July respectively. We alsorenewed our cooperative relationship with AirCanada at the beginning of the winter season flightschedule.
To enhance flight efficiencies and be consistentwith market and peak/off-peak seasonal demands,EVA consolidated flights on North American andSoutheast Asian routes. And to provide the besttransit services on flights into the U.S. and Canada,we continued our close cooperative relationshipswith American Airlines, America West Airlines andContinental Airlines, in addition to Air Canada.
As Taiwan-based industry has moved intoMainland China and cross-straits interaction hasimproved, passenger traffic to China via Hong Kongand Macau has grown. A July 1st amendment to theHong Kong Air Service Agreement enabled EVA to
operate 40 flights per week, and we fly 42 per weekto Macau. In addition, we introduced flexiblepricing strategy and excellent interline service toHong Kong and Macau to make our flights evenmore inviting for passengers traveling back andforth between Taiwan and the Mainland.
We served a total number of 4,793,847passengers in 2002, an increase of 14.7% over2001. Our load factor for the year increased to77.5% from 74.9%.
EVA added two new B747-400 freighters in2002, which privded greater capacity andenhanced capabilities. We inaugurated dedicatedfreighter service to Milan on April 10, and furtherexpanded our cargo network in Europe. Theamendment to the Hong Kong Air Ser viceAgreement also made it possible for EVA to beginfreighter services to the gateway with six flights aweek.
The steady growth in cargo business helpedcounter losses that could have resulted from theglobal economic downturn while measures havebeen put in place to help reduce any impact asluggish economy may have on air freightoperations. EVA has also secured cooperativerelationships with other airlines on important cargoroutes to reduce operating costs, enhance theefficiency of our fleet utilization, and maximizeprofits. In addition, we introduced a special "16-foot plate" system in Taiwan that accommodatesextra height and as much as 60 tons in weight,making it possible for customers to successfully shipthe newest TFT-LCD fifth generation machinery. Thisnew piece of cargo-handling equipment has furtherenhanced EVA's air freight capabilities.
EVA also sponsored the shipment of millions ofdollars worth of art to Taiwan for major shows,including the "Henri Matisse Special Exhibition,""Ambrogio Bondone Giotto Exhibition," and"Alphonese Mucha Exhibition." Our sponsorship ofmajor public shows such as this gives us theopportunity to demonstrate our continuing support
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To Shareholders
• In July, two brand-new Airbus A330-200s will beintroduced on the Tokyo and Hong Kong routes.
• Starting on July 19, the London route will beserved exclusively with a giant, all-passengerB747-400.
• On the summer schedule, March 30 - October 25,EVA Air will use its cooperative alliance with AirCanada to increase Vancouver service from threeflights per week to 4~5 flights per week.
• On January 2, EVA Air's Web site began to offeronline booking and ticket purchasing servicesworldwide. And we will be both diligent andcreative in the pursuit of additional marketingopportunities that we can use to enhance EVA'srevenues.
Cargo Market• In July and October, two MD-11 passenger
aircraft will be converted into freighters and usedto serve routes to Macau, Europe and NorthAmerica, and to boost cargo capacity.
• Cargo service to Ho Chi Minh City, Vietnam andMacau will be increased. EVA will also develop aEuropean logistics center that will enable us toexpand our service range and provide customerswith more options on cargo transoprtation.
• Cargo services to Japan, Mainland China, HongKong, Macau, and European markets will beexpanded in order to reduce the impact of NorthAmerica's sluggish economy.
• Horizontal and vertical business collaborations willbe enhanced to increase existing high-profitservices. EVA will also research and develop newproducts tailored to particular market segments.
• Structural modification plans for current passengeraircraft will proceed as scheduled in our fleetrenewal program. These measures will bothexpand the scale of cargo operations usingaircraft we already own, and will reduce the costsof adding new freighters.
for cultural events that benefit our community.
2003 Preview
ObjectiveDuring 2003, EVA Air will continue to uphold
our commitment to "safe, punctual flights withfriendly, professional service." In addition we willstrive to provide the most convenient and efficientcargo and transportation services at the gatewayswe serve, and are enhancing this effort with theintroduction of our first two Airbus A330-200passenger aircraft. This addition brings our fleet toa total of 44 aircraft, giving us the flexibility toincrease our income and sustain continuous growth.
Sales TargetsWe are forecasting that we will carry an
estimated 5.09 mil l ion passengers in 2003,generating estimated revenue of NT$34.2 billion.These estimates should be viewed within the contextof the sluggish economy, an estimated increase of4.5% in transportation capacity over 2002, and aload factor that is likely to remain the same. Thetwo new A330-200s are being delivered as plannedon July 2.
Cargo sales for 2003 are forecast to producean estimated volume of 694,081 tons, andestimated revenue of NT$30.2 billion. Theseestimates must be viewed within the context of theongoing conflicts in regions around the world, andthe slow economy. EVA Air wil l continue tomaximize business opportunities, make full use ofcargo resources, and boost the cargo turnover rate.In addition, two of our MD-11s will be convertedinto freighters, the first in July and the second inOctober, and used to expand capacity in EVA'sMainland China market.
StrategiesPassenger Market
4
EVA Air was founded in March 1989 as a100% privately owned Taiwan-based airline. It is anaffiliate of Evergreen Marine Corporation, theworld's leading container-shipping line.
From its maiden flight on July 1,1991, EVA Air has grown steadilyand today, ser ves 40 majordestinations on four continents andin Oceania with a f leet of 42aircraft. The carrier has flourishedas it has continued to expand its fleetand operations network.
In 1997, after careful lynurturing an environment wherefaultless service quality and flightsafety are the standard, EVA Air became the firstairline in Taiwan to achieve official ISO 9002Certification in three categories at the same time --passenger, cargo and maintenance operations.Diligently upholding these objectives, EVA Airearned ISO-9001:2000 Cer ti f ication for al lcategories of operation in 2001.
In addition, EVA has ensured quality, smooth,ongoing operations and reduced costs by investingcapital and expertise in airline-related companies,including Evergreen Sky Catering Corporation,
Evergreen Airl ine ServicesCorporation, Evergreen Air CargoService Corporation, and otherselected subsidiaries.
Operating strategies developedby the carrier are far-reaching.Company goals place equalimportance on its passenger andcargo services, and it works incooperation with affiliated carriers
to maximize mutual efficiencies andeffectively compete on a global scale. Its worldwidehub of operations at Chiang Kai-Shek InternationalAirport in Taiwan has proven to be both successfuland strategic.
EVA Air listed its stock on Taiwan's TAISDAQMarket in October 1999, and moved to the mainboard, TSE, in September 2001.
5
The Company
additions to its fleet this year, purchasing a total ofeight, including three MD-11s, one B747-400, andfour B767-200s. The airline also added Bali,Fukuoka, and Auckland routes to its network.
1995The carrier purchased three MD-11 freighters,
and began to vigorously develop air cargooperations. It set goals emphasizing passenger andcargo services equally. And it used joint operationsand land transportation to successfully extend EVACargo services worldwide.
1996Enhancing the high quality of its operations,
EVA applied for ISO-9002 certification. Within thenext year, its passenger service, cargo service andaviation maintenance operations were all threegranted ISO-9002 international certificationssimultaneously. EVA achieved ISO-9001:2000certification in 2001.
1997Ensuring consistent service quality, EVA and
Singapore Air formed Evergreen Sky CateringCorporation as a joint venture, and in February,began providing in-flight catering services.
1998Promoting air safety, EVA signed a joint-
venture contract with General Electric andestablished Evergreen Aviation TechnologiesCorporation on February 24. That same day, apowerful new engine test cell was placed inoperation, and the new joint venture began anaggressive campaign to raise the standards of theaircraft maintenance business.
1999Earning brilliant results with both passenger
and cargo services, EVA produced outstanding
Major Milestones
1988~1990On September 1, 1988 at the celebration for
the 20th birthday of Evergreen Marine Corporation,Group Chairman Y. F. Chang announced thatEvergreen would launch an international airline.EVA Air was officially formed in March 1989. Aftercareful deliberation, the fledgling airline signed acontract with Boeing/McDonnell Douglas for 26aircraft at a total purchase value of US$3.6 billion,and immediately captured the attention of the globalairline market.
1991EVA Air accepted delivery of its first two B767-
300ERs in April, and made its inaugural flight onJuly 1. Within that first week, the new airlineopened five destinations in Asia -- Bangkok, Seoul,Jakarta, Kuala Lumpur, and Singapore.
1992The comprehensive EVA Training Center was
inaugurated in July, and the carrier's first two all-passenger B747-400s were delivered in November.EVA used the first flights of the new aircraft tolaunch its Taipei-Los Angeles route, and also tointroduce all four of its innovative classes of cabinservice and to pioneer its trend-setting option in-between Economy and Super Business by debutingthe acclaimed "Evergreen Deluxe Class."
1993EVA Air set new standards and heightened
expectations by expanding its network to more thanhalf a dozen new destinations, and by launchingservice to London, Paris, Seattle, New York, SanFrancisco, Brisbane, Sidney, and Dubai.
1994EVA made the greatest number of new aircraft
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operating performances for five successive years.The Securities and Futures Commission (SFC) ofTaiwan approved its admission to the exchange,and on October 27, EVA Air shares began to betraded on the over-the-counter market.
2000In anticipation of future needs and to expand
its fleet, EVA signed a purchase contract in June withthe Boeing Company for f i f teen B777-200LRS/300ERS aircraft. Deliveries for seven ofthese aircraft are firm, and scheduled to begin in2005. The carrier relocated its hub to the brand-new Terminal 2 at Chiang Kai-Shek InternationalAirport at the end of July.
2001EVA committed to add more new,
technologically advanced aircraft to its fleet inMarch by signing a purchase contract for eightAirbus A330-200s, and making plans to start takingdeliveries in 2003. EVA Air also secured approvalto transfer its stock listing from OTC, and on 17September, moved its shares to the Taiwan SecurityExchange (TSE).
2002EVA launched its online booking system on
January 9. It gained approval to add 24 passengerflights on its thriving Hong Kong route, and to beginnew freighter service. And it introduced a newslogan "Just relax, your home in the air."
Calendar of 2002 Events
JanuaryEVA launched its online booking system on
January 9. On January 19, it initiated Taipei-Phnom Penh service with three flights a week using aMD-90 being leased from UNI Airways.
MarchOn March 28, EVA Air made a major
investment in new training equipment by signing acontract with CAE to purchase an A330 full-flightsimulator. The acquisition is in preparation for thedelivery of ten new A330 aircraft that are beingadded to the EVA fleet, starting in 2003.
AprilEVA Air Cargo began twice weekly services to
Milan, Italy on April 10 via a Taipei-Sharjah-Brussels-Milan-Bombay-Taipei route, using one of itsMD-11 freighters. Effective April 18, EVA Airmoved its Tokyo service to Narita InternationalAirport from Haneda Airport, and through a code-sharing partnership with Air Nippon Airways,increased frequency from two flights weekly to threedaily.
JuneShareholders voted to increase authorized
capital from NT$24 billion to NT$30 billion andresolved to issue 220,000,000 new shares ofcommon stock at EVA Air's annual general meetingon June 18. Mr. Kuo-cheng Chang, Ms. Kittey Yen,Mr. Shin-I Lin and Mr. Ruey-perng Ko were electedas new directors, increasing the number of boardmembers to seven. At the first meeting of newboard members, Mr. Kuo-cheng Chang, therepresentative for Evergreen Marine Corporation,was elected Chairman of the Board for EVA AirwaysCorporation.
7
JulyStarting on July 1, EVA added the first of 24
more passenger flights approved for its Hong Kongroute and introduced brand-new, all-freighterservice. The move followed renewed air agreementsbetween Hong Kong and Taiwan authorities. EVAtook delivery of its third brand-new B747-400 onJuly 12, and used the super freighter to increasefrequency between Asia and North America.
SeptemberEVA leased its 4th brand-new B747-400
freighter from the Atlas Company on September 1.
DecemberEVA completed a successful equity-raising
program, and its capital was increased to NT$24.25billion. EVA also introduced its new slogan "Justrelax, your home in the air."
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9
Title Name Term
Chairman Chang Kuo-Cheng 2002.06.18- 558,461,973 25.33 602,759,469 24.86 -- -- Boston UniversityRepresentative of 2004.04.18 Chairman, Evergreen International Evergreen Marine Corp. Corp.Director Chang Yung-Fa 2001.04.19- 531,867,594 24.12 602,759,469 24.86 22,376,329 0.92 Taipei Commercial High SchoolRepresentative of 2004.04.18 Chairman, Evergreen Marine Corp. Evergreen Marine Corp.Director Chang Kuo-Wei 2001.04.19- 283,584,568 12.86 329,822,026 13.60 -- -- Master of Arts in Economics, Representative of 2004.04.18 California State University atEvergreen International Long BeachCorp. Junior Vice President,
Evergreen Marine Corp. Director Kitty Yen 2002.06.18- 226,980 0.01 300,912 0.01 -- -- B.A., Chinese Culture University
2004.04.18 President, EVA Airways Corp. Chairman & President, Evergreen Sky Catering Corp.
Director Lin Ching-En 2001.04.19- 3,205,656 0.15 3,631,848 0.15 -- -- M.B.A., Graduate School of Business2004.04.18 Administration, Kobe University,
JapanPresident, Evergreen Japan Corp.
Director Lin Shin-I 2002.06.18- -- -- -- -- -- -- B.A., Taiwan University 2004.04.18 Chairman, United Holding Ltd.
Director Kao Ruey-Perng 2002.06.18- 250 0.00 270 0 -- -- Director, Evergreen Container 2004.04.18 Terminal Corporation
Supervisor Owng Rong-Jong 2002.06.18- 558,461,973 25.33 602,759,469 24.86 200 0 E.M.B.A, Department of BusinessRepresentative of 2004.04.18 Administration,College of Business,Evergreen Marine Corp. National Taipei University
Executive Vice President,Evergreen Marine Corp.
Supervisor Ko Li-Ching 2001.04.19- 283,584,568 12.86 329,822,026 13.6 -- -- Keelung Girl's Senior High SchoolRepresentative of Ever- 2004.04.18 Executive Vice President, green International Corp Evergreen International Corp.Supervisor Chen Cheng-Pang 2001.04.19- 5,000 0.00 5,664 0.00 5,948 0.00 B.A., Soochow University
2004.04.18 Senior Vice President,Uniglory Marine Corp.
President Steven Lin 2003.01.01 232,229 0.01 232,229 0.01 16,060 0.001 B.S., Tamkang University President, Evergreen Airline ServicesCorp.
Shareholdingwhen elected
Commonstock (%)
Presentshareholding
Spouse & minorshareholding
Education & ExperienceCommon
stock (%) Commonstock
(%)
Directors, Supervisors and Principal Officers
10
Capital and Shares
As of 31 December, 2002, EVA Air had authorized share capital of 3,000,000,000 in common stock,valued at NT$10 par value per share with 2,425,000,000 shares issued and outstanding.
History of Capitalization
Month/Authorized capital Issued capital Non-Monetary
YearPrice Shares Amount Shares Amount Sources of capital ('000) capital
('000) ('000) ('000) ('000) expansion
03/1989 10 1,000,000 10,000,000 250,000 2,500,000 Cash founding 2,500,000 -
10/1990 10 1,000,000 10,000,000 350,000 3,500,000 Cash offering 1,000,000 -
08/1991 10 1,000,000 10,000,000 700,000 7,000,000 Cash offering 3,500,000 -
05/1992 10 1,000,000 10,000,000 1,000,000 10,000,000 Cash offering 3,000,000 -
10/1992 10 1,800,000 18,000,000 1,200,000 12,000,000 Cash offering 2,000,000 -
08/1993 10 1,800,000 18,000,000 1,400,000 14,000,000 Cash offering 2,000,000 -
05/1994 10 1,800,000 18,000,000 1,800,000 18,000,000 Cash offering 4,000,000 -
09/1995 10 2,000,000 20,000,000 1,500,000 15,000,000 Capital reduction(6,300,000) -
Cash offering 3,300,000
06/1996 10 2,000,000 20,000,000 1,800,000 18,000,000 Cash offering 3,000,000 -
06/1997 10 2,000,000 20,000,000 2,000,000 20,000,000 Cash offering 2,000,000 -
07/2000 10 2,400,000 24,000,000 2,100,000 21,000,000 Capital surplus 300,000; -
Capitalization of Profit
700,000
08/2001 10 2,400,000 24,000,000 2,205,000 22,050,000 Capitalization of Profit -
1,050,000
12/2002 10 3,000,000 30,000,000 2,425,000 24,250,000 Cash offering 2,200,000 -
11
As of 31 December, 2002
Government Financial Other legal Foreign institution DomesticTotal
agency institution entity & natural person natural person
Number of shareholders 0 0 99 818 48,123 49,040
Shareholdings 0 0 1,055,647,758 274,454,968 1,094,897,274 2,425,000,000
Holding percentage 0 0 43.53 11.32 45.15 100.00
Status of Shareholders
Distribution of Common Shares
As of 31 December, 2002
Range of shareholdings Number of shareholders Number of shares %
1-999 8,457 2,333,309 0.0962
1,000-5,000 22,594 48,406,425 1.9961
5,001-10,000 5,840 39,957,726 1.6477
10,001-15,000 3,852 45,963,727 1.8954
15,001-20,000 1,521 26,695,515 1.1008
20,001-30,000 1,986 48,238,115 1.9892
30,001-40,000 1,314 45,739,140 1.8861
40,001-50,000 741 33,204,044 1.3692
50,001-100,000 1,754 114,974,906 4.7412
100,001-200,000 563 74,696,058 3.0802
200,001-400,000 187 51,052,281 2.1052
400,001-600,000 57 28,475,582 1.1743
600,001-800,000 30 21,113,609 0.8707
800,001-1,000,000 19 16,617,126 0.6852
1,000,001 and above 125 1,827,532,437 75.3621
Total 49,040 2,425,000,000 100.0000
Shareholders Structure
EvergreenInternational
Corp.14%Others
29%
ForeignInstitution& Person
11%Chang Familly
21%
EvergreenMarine Corp.
(Taiwan)25%
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Net Worth, Earnings, Dividends and Market Price Per Share
2002 2001
Market price per share
Highest market price 17.20 15.8
Lowest market price 9.00 5.4
Average market price 12.94 10.67
Net worth per share
Before distribution 14.45 13.45
After distribution 14.44 13.45
Earnings per share
Weighted average share 2,425,000,000 2,205,000,000
Earnings per share 1.19 (1.44)
Earning per share (1) - -
Dividends per share
Cash dividends 0.2 -
Stock dividends 0.2 -
Dividends from retained earnings 0.2 -
Dividends rrom capital surplus - -
Return on investment
Price/earnings ratio (2) 10.87 -
Price/dividend ratio (3) 64.70 -
Cash dividend yield rate (4) 1.55 -
Note (1) Retroactive adjustment for capitalization of unappropriated earnings and employee bonuses.
Note (2) Price/earnings ratio: average market price/earnings per share.
Note (3) Price/dividend ratio: average market price/cash dividends per share.
Note (4) Cash dividend yield rate: cash dividends per share/average market price.
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EVA Air People
2002 2001No. of Pilots 644 599
employees Cabin crew 1,254 1,262Dispatchers 42 42
Maintenance 75 89Others 2,379 2,560Total 4,394 4,552
Average age 32.5 31.7Average seniority 6.2 6.1
Education Doctorate 0.07 0.09Master's 2.62 2.55Bachelor 81.2 81.66
High school 10.86 10.59Other 5.25 5.11
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Org
aniz
atio
n
Labor Safety & Health Div.
Clinic Div.
Computer Div.
Taichung Office
Kaohsiung Branch
CKS Airport Div.
Engineering & Maintenance Div.
Cabin Service Div.
Inflight Service Div.
Flight Operation Div.
Flight Safety Div.
Cargo Div.
Passenger Div.
Service Coordination Div.
Corporate Planning Div.
Finance Div.
Legal & Insurance Div.
Management Div.
Public Relations Div.
Shar
ehol
ders
Chai
rman
Boar
dof
Dire
ctor
s
Pres
iden
t
Supe
rvis
ors
Aud
iting
Div
.
Serv
ice
Qua
lity
Com
mitt
ee
Corp
orat
ePl
anni
ngCo
mm
ittee
Safe
tyPr
omot
ion
Com
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ee
15
The Fleet
• In June 2000, EVA signed an agreement withBoeing to buy 15 of its advanced, long-rangeB777-200LR/-300ERs, and will begin takingdelivery of these aircraft in April of 2005. Theorder is firm for seven passenger aircraft, threeB777-200LRs and four B777-300ERs, and EVAhas an option for the remaining eight.
• In March 2001, EVA placed an order for eightA330-200 luxury wide-body passenger aircraft,with delivery of the first one scheduled for June2003. Two of the aircraft will be purchased, andsix leased. The A330s will replace eight BoeingB767s EVA currently has in service. EVA willconfigure the 252-passenger aircraft with 24Business Class and 228 Economy seats. Seatpitch in Business and Economy cabins will be 61"and 33", respectively. In addition to increasingthe pitch for all seats, EVA will also install state-of-
the-art in-flight entertainment systems and provideindividual TV monitors for every passengerthroughout the aircraft.
• In November 2001, EVA sold and leased backone B747-400 Combi and one MD-11.Suppor ting i ts objectives for future f leetdevelopment, EVA leased two A330-200s to bedelivered in 2005.
• In January 2002, EVA wet leased one MD-90from UNI Airways. In May 2002, it wet leasedtwo B757-200s from Far Eastern Airways Corp.
• In July 2002, EVA took delivery of its third newB747-400 freighter.
• In September 2002, EVA acquired its 4th brand-new B747-400 freighter, leasing it from the AtlasCompany.
OperatingAge DailyAvg.
Aircraft Type OwnedLease
Total (as of On Order(delivery date) Utilization
Dec.01) (hrs)-2001
B747-400 1 4 5 6.91 13.67
B747-400Combi 1 9 10 8.50 13.98
B767-300ER 0 4 4 11.07 8.41
B767-200 4 0 4 8.87 7.17
MD-11 2 1 3 8.26 11.67
MD-11Freighter 7 2 9 5.32 14.32
B747-400Freighter 3 1 4 1.23 14.79
B777-200LR 3(May, June2006/June 2007) NA
B777-300ER 4(April, May2005/May 2007/2008) NA
A330-200 10 ( June 2003/Jan., Feb., April, Nov.,
2004/April, May, July, Nov., 2005) NA
B757-200 0 2 2 2.98 4.80
MD-90 0 1 1 4.94 5.70
Total 18 24 42 6.85
16
ASK (million) RPK (million) Load factor (%)
2002 2001 % 2002 2001 % 2002 2001 %
America 11,973 11,677 2.5 9,523 8,936 6.6 79.6 76.5 3.1
Europe 4,542 3,982 14.1 3,565 3,088 15.4 78.5 77.6 0.9
Asia 7,539 6,894 9.4 5,636 4,992 12.9 74.8 72.4 2.4
Oceania 1,131 1,175 -3.8 783 760 3.0 69.2 64.7 4.5
Total 25,184 23,728 6.1 19,508 17,777 9.7 77.5 74.9 2.6
Passenger no. Revenue (million) Yield (NT$)
2002 2001 % 2002 2001 % 2002 2001 %
America 878,220 821,338 6.9 11,646 11,078 5.1 1.22 1.24 -1.6
Europe 447,227 392,703 13.9 5,217 4,346 20.0 1.46 1.41 3.5
Asia 3,370,688 2,862,381 17.8 14,522 13,005 11.7 2.58 2.61 -1.1
Oceania 97,712 102,197 -4.4 1,128 1,122 0.5 1.44 1.47 -2.0
Total 4,793,847 4,178,619 14.7 32,514 29,550 10.0 1.67 1.66 0.6
The Market
Review of Operations
Passenger Operations
AFTK (million) FTK (million) Load factor (%)
2002 2001 % 2002 2001 % 2002 2001 %
America 3,505 2,752 27.4 2,557 1,934 32.2 73.0 70.3 2.7
Europe 1,053 1,037 1.6 929 830 11.9 88.2 80.1 8.1
Asia 893 822 8.6 608 487 24.8 68.1 59.2 8.9
Oceania 40 45 -11.2 32 28 16.1 81.3 63.1 18.2
Total 5,491 4,656 17.9% 4,126 3,279 25.8 75.1 70.4 4.7
Cargo carried ( Tons) Revenue (million) Yield (NT$)
2002 2001 % 2002 2001 % 2002 2001 %
America 223,126 171,578 30.0 15,948 10,916 46.1 6.24 5.64 10.6
Europe 92,461 80,532 14.8 5,952 5,156 15.4 6.41 6.21 3.2
Asia 299,448 230,752 29.8 5,457 4,412 23.7 8.98 9.06 -0.9
Oceania 4,401 4,053 8.6 162 159 2.0 4.99 5.61 -11.1
Total 619,436 486,915 27.2 27,519 20,643 33.3 6.67 6.3 5.9
Cargo Operations
17
2003 outlook
Supply, Demand and Growth Potential for Future Markets
The rise and fall of airline passenger and cargomarkets depend upon two factors. The first iswhether or not Taiwanese industries will maintain thecurrent rapid pace of their relocations to othercountries. And the second is whether or not progressis made with the Three Direct Links between Taiwanand Mainland China.
America
EVA Air now has 41 direct passenger flights tothe U.S. and Canada (Vancouver), and is the airlineoffering the most flights to North America from theSoutheast Asia region. During the summer season(March 30 ~ October 25), EVA will provide ongoing
joint operations with Air Canada on the Vancouverroute, and will increase the frequency of weeklyflights from three to four or five. EVA also has jointoperating relationships with American Airlines,Continental Airlines and America West Airlines thatgive passengers convenient transit services todomestic destinations in the U.S. and Canad. In Julywhen the first modified MD-11 freighter is ready foruse, we will increase cargo service to America fromthe current 28 flights to 31 flights per week.
Europe
Starting on March 17, Vienna frequency wasreduced from four to three flights per week toaccommodate the MD-11 modification program.On July 19, one of our giant B747-400 all-passenger aircraft will be placed in service on theLondon route to meet growing European demandand to enable more passengers to enjoy theconveniences of transit services between Europe andmajor destinations throughout Southeast Asia.
Belgium will be designated as our "EuropeanCargo Centre" in August. This will give us a solidplatform for providing more comprehensive cargoservices in Europe, and for more fully integrating ourcargo network into the European shippingcommunity. EVA is also continuing to work to secureair traffic rights so that we can increase services toexisting gateways and boost ef ficiency of ouroperations in the process.
Major Competitors and Market Share
2002 Passenger Revenue Composition
45%
16%
36%
3%
America
Europe
Oceania
Asia
2002 Cargo Revenue Composition
20%
22%58%
1%America
Europe
Oceania
Asia
2002 2001
Passenger EVA Airways 19% 17%
China Airlines 30% 32%
Cathay Pacific Airways 14% 13%
Japan Asia Airlines 7% 7%
Cargo EVA Airways 20% 18%
China Airlines 26% 28%
Cathay Pacific Airways 9% 10%
Japan Asia Airlines 7% 6%
18
maximize profits, however, EVA is taking theopportunity created in 2003 by Japan's lifting ofchar ter f l ight restrict ions, and is providingunscheduled service to selected destinations.
Advantages, Disadvantagesand Proactive Strategies forCompetitive Strengths forFuture Development
Excellent Flight SafetyRecord
From the day of its inception,EVA Air has been guided by theEvergreen Group's 35 years of
experience in international transportation. Safety,quality service and convenience are the 12-year-oldairline's top priorities, and the goal is to givepassengers the most comfortable flight servicespossible. EVA enhances flight safety by holdingregular Joint Security Committee and monthly safetyflying meetings where staff and crewmembers reviewall safety-related issues and ensure that "safety"concepts are at the top of every employee's mind.
Through comprehensive AirSafety Investigations conducted bythe U.S. Federal AviationAdministration (FAA) and Taiwan'sCivil Aeronautic Administration(CAA), EVA Air's safety standardsand practices were found to rankamong the best in the air l ineindustry. In addition, EVA Air hasan excellent flight safety record.This excellent record qualifies EVA
for a reduced rate on i ts f leetinsurance each year, helping bring down costs andbuilding the company's safety reputation at the sametime.
New Zealand and Australia
EVA Air resumed operation of Sydney flights onNovember 20, 2002, when Oantas Airlines, ourlongtime code-sharing partner, discontinued serviceto this gateway from Taiwan. Ourjoint operating arrangement withthe carrier for connecting servicebetween Sydney and Brisbaneended at the same time. During the2003 summer season (March 30 ~October 25), EVA is temporarilysuspending operation of our ownAuckland flights, and will serve theroute using a "seat-blocking" code-sharing arrangement with Air NewZealand that will continue to give our passengers theconvenience of three weekly flights to the NewZealand city.
Asia
Due to sluggish market demand, EVA Air isevaluating all regional flights in Southeast Asia,keeping those that are profitable, suspending thosethat are not, and improvingefficiency. We are concentratingexpansion plans on profitableroutes such as Hong Kong, Macau,and Japan.
In 2002, EVA Air was the onlyairline from Taiwan to fly to Osakaand Fukuoka. On April 18, 2002,we began service to Tokyo Naritawith 14 flights per week. EVA has ajoint service agreement with AllNippon Airways for flights on allthree of these routes to destinations in Japan. OnMarch 30, 2003, Hokkaido flights were upgradedfrom charters to three-times-a-week scheduledservice. For the convenience of passengers and to
19
New Aircraft, Fleet and Seamless Service Network
At the end of 2002, EVA Air had expanded itsfleet to 42 aircraft with an averageage of 6.85 years. To give customersthe safest, most comfortable flightservices possible and to becomemore competitive, EVA will start in2003 to introduce new Airbus A330and Boeing B777 passenger aircraft,and will set the industry standardwith i ts f leet of technological lyadvanced, high per formanceaircraft. EVA has steadily expandedits route system to serve 40 major destinations on theEuropean, American and Asian continents, and inOceania, and has formed. a highly effective servicenetwork for both passenger and cargo flights. Usingthis modern fleet and well-developed route network,EVA will meet customers' needs by providing the bestflight services possible, and also create morebusiness opportunities and a better operatingenvironment for the transportation industry as awhole.
Professional Management with a Wealth of Experience
"A comfortable flight comes from assurance offlight safety." Combining a wealth of experiencewith a highly trained staff, EVA is working to providethe very best in-flight service. From organizationalmanagement and risk management to activelyhosting different air safety seminars and workshops,EVA aggressively promotes staff and crew awarenessof flight safety. We use the Flight Data Acquisition &Analysis System (FDAAS) - an advanced monitoringsystem - to help standardize flight operations andprovide a targeted and comprehensive approach toair safety.
Back at its very beginning, after it had beenflying little more than a year, EVA opened itsexceptional Aviation Training Center. We investedheavily in the facility, its systems and equipment so
that we could provide trainingcourses that would be among thebest in the industr y, includingAviation Training, Fl ight CrewTraining, Ground Crew Training,and Maintenance Training.Professional training courses andreview programs held at theAviation Training Center are amongthe reasons why EVA is so successfulat providing first-class flight services.
Competitive Strengths and Future Development
With both Taiwan's and China's recent entryinto the World Trade Organization (WTO), cross-straits trade and more interactions are to beexpected. Via the WTO negotiating mechanism,cross-straits investments will also expand businessopportunities. Trade volume among business andindustry on the two sides will grow and increasedemand for the logistics business at the same time. Ifthe issue of direct flights can be negotiated betweenthe two sides of the Straits within the near future, itwill guarantee both the prosperity of Mainlandregions and the economic status of Taiwan. Thisdevelopment will create significant advantages forthe airline industry.
There are factors that may threaten operationsin 2003, however. These factors include thepossibility that discussions on the Three Direct Linksbetween the Straits could be suspended; no sign ofimprovement in the international economicslowdown/deterioration; rising oil prices due to theOil Reduction Act; and the negative impact of thefluctuating exchange rate on the NT Dollar.
20
21
22
• Effective April 18, EVA Air moved its Tokyo serviceto Narita International Airport from HanedaAirport, and through a code-sharing partnershipwith Air Nippon Airways, increased frequencyfrom two flights weekly to three daily.
• Starting on July 1, EVA added the first of 24 morepassenger flights approved for its Hong Kongroute and introduced brand-new, all-freighterservice.
The Network
• On January 19, EVA initiated Taipei-Phnom Penhservice with three flights a week using a MD-90being leased from UNI Airways.
• EVA Air Cargo began twice weekly services toMilan, Italy on April 10 via a Taipei-Sharjah-Brussels-Milan-Bombay-Taipei route, using one ofits MD-11 freighters.
NorthLos San
Seattle Anchorage Atlanta Chicago
AmericaAngeles Francisco
Dallas Vancouver Newark JFK
SouthBrisbane Sydney Auckland
Pacific
Europe Vienna London Paris Amsterdam Brussels Milan
Osaka Fukuoka Taipei Kaohsiung Hong Kong Macau
BangkokKuala
Penang JakartaDenpasar-
Surabaya
AsiaLumpur Bali
SingaporeHo Chi
Bombay Manila Tokyo SapporoMinh City
Phnom Penh
MiddleSharjah Dubai
East
Air cargo destination only
Total 40 destinations
23
Principal Subsidiaries
EVA holds interests in the companies presented in the following table.
Company Principal Activities Location Founded Capital Share %
EvergreenGround handling Taiwan Oct. 1990 TWD361,,000 56.33%
Airline Services Corp.
RTW AirTravel business Singapore Oct. 1989 SGD1,500,000 49.00%
Services(s) Pte. Ltd.
Green Siam AirTravel business Thailand Mar. 1996 THB20,000,000 49.00%
Services Co., Ltd.
Evergreen SkyAirline catering Taiwan Oct. 1993 TWD1,000,000,000 49.80%
Catering Corp.
EvergreenAir transport and
Airways Serviceaircraft leasing
Macau Dec. 1994 USD5,676,259 99.00%
(Macau) Ltd.
UNI Airways Corp. Domestic airline Taiwan Aug. 1988 TWD1,062,500,000 18.09%
Evergreen Aviation Aircraft repair andTaiwan Nov. 1997 TWD2,600,000,000 80.00%
Technologies Co.,Ltd. maintenance
Hsiang-LiInvestment business Taiwan Jan. 2001 TWD1,000,000,000 99.99%
Investment Corp.
EvergreenSecurity services Taiwan Apr. 1998 TWD80,000,000 31.25%
Security Co., Ltd.
EvervoyageGround Transportation Taiwan Apr. 1994 TWD150,000,000 43.67%
Transport Corp.
Evergreen Air Cargo Terminal operation Taiwan Mar.2000 TWD1,200,000,000 55.80%
Cargo Service Co.
UNI Japan Co.,Ltd Travel business Japan Feb.2002 JPY10,000,000 49.50%
24
2002 2001 2000 1999 1998 1997 1996 1995
Current assets 22,559 20,938 18,715 15,598 14,555 11,941 8,731 7,072
Fixed assets 62,018 62,075 64,017 60,021 53,949 54,882 56,095 55,739
Total assets 115,513 113,402 107,874 96,869 85,919 79,310 70,220 67,218
Current liabilities 28,698 28,409 21,944 18,732 20,579 19,118 16,910 15,554
Long-term liabilities 49,781 52,725 52,191 40,608 32,478 31,887 33,759 37,093
Total liabilities 80,467 83,736 76,273 69,673 58,794 51,006 50,670 52,647
Share capital 24,250 22,050 21,000 20,000 20,000 20,000 18,000 15,000
Shareholders' equity 35,046 29,665 31,601 27,196 27,124 28,304 19,550 14,571
Income Statement
NT$(Million)
2002 2001 2000 1999 1998 1997 1996 1995
Operating revenue 64,577 52,451 54,529 48,077 42,927 38,626 35,187 28,859
Operating costs 59,519 52,123 49,570 44,149 40,952 35,459 32,244 26,457
Operating profit 5,058 329 4,959 3,929 1,975 3,167 2,943 2,402
Non-operating income 598 772 1,425 1,199 1,740 663 469 1,129
Non-operating3,239 4,385 3,860 3,779 3,389 2,849 3,103 4,433
expenses and loss
Income before tax 2,417 (3,285) 2,523 1,348 326 980 310 (902)
Tax 220 110 (12) (184) (251) (91) 160 1,100
Net income 2,637 (3,175) 2,511 1,165 75 889 470 198
Earnings per share (EPS) 1.19 (1.44) 1.2 0.58 0.04 0.47 0.28 0.16
Financial Results
Balance Sheet
NT$(Million)
Revenue and operating marginMillion
Revenue
Profitmargin
70000
60000
50000
40000
30000
20000
10000
0
10.00%9.00%8.00%7.00%6.00%5.00%4.00%3.00%2.00%1.00%0.00%
1995 1996 1997 1998 1999 2000 2001 2002
Financial and Operating Statistics
25
Operating Revenue
NT$(Million)
Passenger Cargo Other Total
1995 18,839 65% 8,976 31% 1,043 4% 28,858 100%
1996 23,189 66% 10,766 31% 1,232 3% 35,187 100%
1997 24,313 63% 12,909 33% 1,404 4% 38,626 100%
1998 24,494 57% 17,078 40% 1,354 3% 42,927 100%
1999 26,078 54% 20,463 43% 1,536 3% 48,077 100%
2000 29,405 54% 23,433 43% 1,691 3% 54,529 100%
2001 29,550 56% 20,643 39% 2,258 5% 52,451 100%
2002 32,514 50% 27,519 43% 4,545 7% 64,577 100%
Operating Costs
NT$(Million)
2002 2001 2000 1999 1998 1997 1996 1995
Fuel 13,637 12,348 12,393 8,394 7,040 7,014 6,343 4,403
Staff 6,324 6,328 6,291 6,031 6,096 5,619 5,195 4,482
Lease rental 7,442 6,838 6,241 5,981 6,024 3,604 3,413 2,686
Depreciation and amortization 4,734 4,734 4,184 3,876 3,865 4,147 3,616 3,330
Commissions 5,853 4,719 4,955 4,892 4,260 3,629 3,183 2,921
Landing, parking and routes 7,121 6,283 5,557 5,121 4,972 4,474 4,019 3,296
Maintenance 5,703 3,805 2,955 3,635 2,167 1,203 1,105 618
Other 8,706 7,068 6,994 6,306 6,528 5,769 5,370 4,720
Total 59,520 52,123 49,570 44,236 40,952 35,459 32,244 26,457
Total revenue-2002
Cargo services43%
Other7%
Passenger services50%
26
Financial Ratio Analysis
Item Year 2002 2001 2000 1999 1998 1997 1996 1995
Financial Structure Debt ratio 69.66 74 71 73 68 64 72 78
(%) Ratio of long-term liabilities and
stockholders' equity to fixed assets 137 133 131 113 110 110 95 93
Solvency (%) Current ratio 79 74 85 83 71 62 52 46
Quick ratio 45 38 39 25 29 26 22 20
Interest safety factor 178 10 161 137 105 124 109 69
Management ability Receivables turnover (times) - - - - - - - -
Average collection days for
receivables -- - - - - - -
Inventory turnover (times) - - - - - - - -
Average days for sale of goods - - - - - - - -
Fixed assets turnover (times) 1.04 0.85 0.85 0.80 0.80 0.7 0.63 0.53
Total assets turnover (times) 0.56 0.46 0.51 0.50 0.50 0.49 0.5 0.45
Profitability Return on total assets (%) 4.21 - 5 4 3 4 4 4
Return on stockholders' equity (%) 8 (10) 9 4 - 4 3 2
Ratio of operating profit to paid-in
capital (%)21 1 24 20 10 16 16 16
Return on sales (%) 4 (6) 5 2 - 2 1 1
Earnings per share 1.19 (1.44) 1.2 0.58 0.04 0.47 0.28 0.16
Cash flow Ratio of cash flows 33 2 32 33 7 19 20 18
Ratio of fair for net cash flow 136 43 60 37 22 17 10 5
Ratio of re-investment for cash 8 - 7 7 5 5 5 5
Degree of leverage Degree of operating leverage 10 125 9 14 5 4 4 4
Financial leverage 2.35 (0.10) 4 4.94 (2) 8 17 (4)
Costs-2002
14%
12%
13%
8% 10%10%
11%
22%
Staff
Maintenance
Depreciation & amortization
Landing, parking & routes
Fuel
Commission
Lease
Others
27
Note:
(1) Debt Ratio: Total Liabilities/Total Assets
(2) Ratio of Long-term Liabilities And Stockholders' Equity To Fixed Assets
: (Net Stockholder Equity + Long Term Liabilities)/Net Fixed Assets
(3) Current Ratio: Current Assets/Current Liabilities
(4) Quick Ratio: Liquid Assets/Current Liabilities
(5) Interest Safety Factor:Earning before taxes and interest expense/ Interest Expense
(6) Fixed Assets Turnover: Net Sales/ Fixed Assets
(7) Total Assets Turnover: Net Sales/Total Assets
(8) Return on Total Assets: (Income After Tax+Interest Expenses)/Total Assets
(9) Return on Stockholders' Equity: Income After Tax/Average Stockholders' Equity
(10) Ratio of Operating Profit-to-paid-in Capital: Operating Income/Capital
(11) Return on Sales: Income After Tax/ Net Sales
(12) Ratio of Cash Flows: Fund From Operating/Current Liability
(13) Ratio of the Fair For Net Cash Flow: 5- Year Sum of Cash From Operation/5 Year Sum of Capital expenditures, Inventor.
Additions, and Cash Dividends
(14) Ratio of Re-investment For Cash: (FFO - Cash Dividend)/(Gross Fixed Assets + Long-term Investment + Other Assets +
Working Capital)
(15) Degree of Operating Leverage: (Net Sales - Operating Variable Cost And Expense)/Operating Income
(16) Financial Leaverage: Operating Income/(Operating Income - Interest Expense)
2002 2001 2000 1999 1998 1997 1996 1995
Overall capacity (million) 7,758 6,791 6,718 6,170 5,401 4,575 5,489 4,777
Overall traffic (million) 5,882 4,879 5,273 4,786 4,043 3,579 3,387 3,058
Overall load factor (%) 75.8 71.8 78.5 77.6 74.9 78.2 61.7 64.0
Overall yield (NT$) 10.21 10.28 10.02 9.72 10.28 10.4 10.02 9.1
Passenger capacity (million) 25,184 23,728 25,297 24,334 23,859 22,695 21,970 20,380
Passenger traffic (million) 19,508 17,777 19,105 18,151 16,670 16,205 16,167 14,686
Passengers carried ('000) 4,794 4,179 4,108 3,866 3,664 4,159 4,237 3,123
Passenger load factor (%) 77.5 74.9 75.5 74.6 69.9 71.4 73.6 72.1
Passenger yield (NT$) 1.67 1.66 1.54 1.44 1.47 1.5 1.43 1.28
Cargo capacity (million) 5,491 4,656 4,441 3,980 3,254 2,532 3,512 2,943
Cargo traffic (million) 4,126 3,279 3,554 3,152 2,543 2,121 1,932 1,736
Cargo carried (tons) 619,435 486,915 512,556 460,346 367,092 314,512 275,456 222,222
Cargo load factor (%) 75.1 70.4 80.0 79.2 78.2 83.8 55.0 59
Cargo yield (NT$) 6.67 6.3 6.59 6.49 6.72 6.09 5.57 5.17
Unit cost (NT$) 7.67 7.67 7.38 7.17 7.58 7.75 5.87 5.53
Breakeven load factor (%) 75.1 74.6 73.7 73.8 73.8 74.5 55.6 60.8
Number of aircraft 42 37 36 35 33 30 26 25
Number of employees 4,394 4,552 5,290 4,977 5,060 5,929 5,663 5,241
Capacity per employee(thousand) 1,765 1,492 1,270 1,240 1,067 772 969 911
Traffic per employee(thousand) 1,339 1,072 997 962 799 604 598 583
Revenue per employee (thousand) 14,697 11,523 10,308 9,660 8,484 6,515 6,213 5,506
Operating Results
28
NT$/t-kmYield, Unit Cost and Load Factors
Unit costOverall load factorOverall Yield
Breakeven load factor
11
10
9
8
7
6
5
85
80
75
70
65
60
55
%
1995 1996 1997 1998 1999 2000 2001 2002
T-km Staff Productivity
Capacity per employee Traffic per employee Revenue per employee
2,000,000
1,500,000
1,000,000
500,000
0
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
NT$'000
1995 1996 1997 1998 1999 2000 2001 2002
Tons('000) Cargo carried and load factor
Cargo tons L/F
700
600
500
400
300
200
100
85
80
75
70
65
60
55
50
%
1995 1996 1997 1998 1999 2000 2001 2002
Passenger no.
L/F
85
80
75
70
65
60
55
50
%('000)
Passenger carried and load factor6,000
5,500
5,000
4,500
4,000
3,500
3,0001995 1996 1997 1998 1999 2000 2001 2002
29
Auditors' Report
The Board of DirectorsEVA Airways Corp.:
We have audited the balance sheets of EVA Airways Corp. as of December 31, 2002 and 2001, and therelated statements of operations, changes in stockholders' equity and cash flows for the years then ended. Thesefinancial statements are the responsibility of the Company's management. Our responsibility is to express anopinion on these financial statements based on our audits. We did not audit the financial statements of certainnon-consolidated investee companies. The Company's investments in these companies as of December 31,2002 and 2001, were evaluated using the equity method, and the resulting book values of these investmentsamounted to NT$2,250,331 thousands (US$ 64,757 thousands) and NT$2,364,963 thousands (US$67,570thousands), respectively. The resulting investment losses amounted to NT$203,339 thousands (US$5,879thousands) and NT$599,826 thousands (US$17,736 thousands) for the years 2002 and 2001, respectively.The financial statements of these companies were audited by other auditors whose reports were furnished to us,and our opinion, insofar as it relates to these amounts included for the said investee companies, is based solelyon the reports of other auditors.
We conducted our audits in accordance with Republic of China generally accepted auditing standards andthe Republic of China Guidelines for Certified Public Accountants' Examinations and Reports on FinancialStatements. Those standards and guidelines require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believe that our audits and the reports of theother auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the financial statements of EVAAirways referred to in the first paragraph present fairly, in all material respects, the financial position of EVAAirways Corp. as of December 31, 2002 and 2001, and the results of its operations and its cash flows for theyears then ended, in conformity with Republic of China generally accepted accounting principles.
February 18, 2003
The accompanying financial statements are intended only to present the financial position, results ofoperations and cash flows in accordance with the accounting principles and practices generally accepted in theRepublic of China and not those of any other jurisdictions. The standards, procedures and practices to auditsuch financial statements are those generally accepted and applied in the Republic of China.
Financial Statements
30
New Taiwan dollars US dollarsLiabilities and Stockholders' Equity 2002 2001 2002 2001
Current liabilities:Short-term borrowings $ 3,552,000 6,207,000 102,216 177,343Commercial paper 1,238,792 3,778,288 35,649 107,951Notes payable 914 772 26 22Accounts payable 1,838,985 1,507,730 52,920 43,078Accounts payable-related parties 280,230 261,302 8,064 7,466Accrued expenses 4,828,578 3,802,817 138,952 108,652Other payables-related parties 436,574 438,569 12,563 12,531Other payables 2,973,304 1,519,507 85,563 43,414Other financial liabilities-current - 387,636 - 11,075Unearned revenue 5,803,402 4,555,273 167,004 130,151Current portion of long-term loans 7,279,795 5,625,600 209,491 160,731Other current liabilities 466,365 324,827 13,421 9,281
Total current liabilities 28,698,939 28,409,321 825,869 811,695Long-term liabilities:
Bonds payable 5,660,000 6,960,000 162,877 198,857Long-term loans 24,601,499 30,758,439 707,957 878,813Other installments payable 1,490,147 - 42,882 - Aircraft payable 18,030,315 15,006,831 518,858 428,766
Total-long-term liabilities 49,781,961 52,725,270 1,432,574 1,506,436Other liabilities:
Accrued employee retirement liabilities 781,693 562,469 22,495 16,071Other liabilities 1,193,905 1,862,224 34,357 53,206Other financial liabilities-noncurrent 10,654 177,175 306 5,062
Total other liabilities 1,986,252 2,601,868 57,158 74,339Total liabilities 80,467,152 83,736,459 2,315,601 2,392,470
Stockholders' equity :Common stock 24,250,000 22,050,000 875,214 812,104Capital surplus 2,352,079 4,244,448 80,261 148,766Retained earnings:Legal reserve - 351,213 - 11,048Special reserve - 317,634 - 9,487Retained earnings (accumulated deficits) 2,637,542 (2,669,971) 76,252 (79,294)Total retained earings 2,637,542 (2,001,124) 76,252 (58,759)Other stockholders' equity adjustments:Net loss not yet recognized as net pension cost (96,898) (44,359) (2,779) (1,267)Deferred credit (debit) 115,228 (558,757) 3,431 (15,964)Cumulative translation adjustments 5,788,070 5,975,282 (23,860) (37,294)Total other stockholders' equity adjustments 5,806,400 5,372,166 (23,208) (54,525)
Total stockholders' equity 35,046,021 29,665,490 1,008,519 847,586Commitments and contingenciesTotal liabilities and stockholders' equity $ 115,513,173 113,401,949 3,324,120 3,240,056
New Taiwan dollars US dollarsAssets 2002 2001 2002 2001
Current assets:Cash and cash equivalents $ 1,544,397 2,141,907 44,443 61,197Short-term investments 4,006,196 2,855,573 115,286 81,588Notes receivable 313,545 315,875 9,023 9,025Accounts receivable, net 6,480,787 4,964,752 186,498 141,850Accounts receivable-related parties 34,364 108,339 989 3,095Other receivables 113,725 137,408 3,273 3,926Other financial assets-current 91,093 - 2,621 - Other receivables-related parties 291,533 333,579 8,389 9,531Inventories 6,748,439 7,735,104 194,200 221,003Prepaid expenses 1,782,022 1,555,411 51,281 44,440Other prepayments 384,830 361,191 11,074 10,320Deferred income tax assets-current 674,279 331,700 19,404 9,477Other current assets 93,823 97,350 2,700 2,782
Total current assets 22,559,033 20,938,189 649,181 598,234
Long-term equity investments 10,180,526 10,083,666 292,964 288,105Property, plant and equipment :
Land 1,869,784 1,868,532 53,807 53,387Buildings 4,393,733 4,028,233 126,438 115,092Aircraft 74,512,938 69,639,299 2,144,257 1,989,694Machinery and equipment 5,115,771 5,183,349 147,216 148,096Rotable parts 645,955 839,029 18,589 23,972
86,538,181 81,558,442 2,490,307 2,330,241Less: accumulated depreciation (25,921,952) (22,040,223) (745,955) (629,720)
60,616,229 59,518,219 1,744,352 1,700,521Construction in progress 4,868 240,153 140 6,862Advances for purchases of equipment 1,397,498 2,316,490 40,216 66,185
Net property, plant and equipment 62,018,595 62,074,862 1,784,708 1,773,568Other assets:
Other financial assets-noncurrent 32,526 - 936 - Deferred pension cost 245,652 144,941 7,069 4,141Refundable deposits and other assets 17,359,075 16,904,559 499,542 482,987Deferred charges 2,685,388 2,735,468 77,277 78,156Deferred income tax assets-noncurrent 432,378 520,264 12,443 14,865Total other assets 20,755,019 20,305,232 597,267 580,149
Total assets $ 115,513,173 113,401,949 3,324,120 3,240,056
EVA AIRWAYS CORP.Balance Sheets
December 31, 2002 and 2001(expressed in thousands of dollars)
31
New Taiwan dollars US dollars
2002 2001 2002 2001
Operating revenue $ 64,577,407 52,451,455 1,866,939 1,550,901
Operating cost (53,282,923) (46,554,882) (1,540,414) (1,376,549)
Gross profit from operations 11,294,484 5,896,573 326,525 174,352
Operating expenses (6,236,894) (5,567,842) (180,309) (164,632)
Operating income 5,057,590 328,731 146,216 9,720
Non-operating income and gains:
Interest income 62,569 65,853 1,809 1,947
Investment gains, net 141,376 - 4,087 -
Other income 394,459 705,927 11,404 20,873
598,404 771,780 17,300 22,820
Non-operating expenses and losses:
Interest expenses, net of capitalized interest of
NT$88,849 thousands (US$2,569 thousands)
and NT$164,410 thousands (US$4,861
thousands) in 2002 and 2001, respectively (2,907,829) (3,642,359) (84,066) (107,698)
Investment losses, net - (430,253) - (12,722)
Exchange losses, net (252,461) (182,054) (7,299) (5,383)
Other loss (78,225) (130,466) (2,261) (3,858)
(3,238,515) (4,385,132) (93,626) (129,661)
Income (loss) before income tax 2,417,479 (3,284,621) 69,890 (97,121)
Income tax benefit 220,000 110,000 6,360 3,253
Net income (loss) $ 2,637,479 (3,174,621) 76,250 (93,868)
Earnings (loss) per share (expressed in dollars):
Income (loss) before income tax $ 1.09 (1.49) 0.03 (0.04)
Net income (loss) $ 1.19 (1.44) 0.03 (0.04)
See accompanying notes to financial statements.
EVA AIRWAYS CORP.Statements of Income
For the years ended December 31, 2002, and 2001(amounts expressed in thousands of dollars, except earnings per share)
32
EVA AIRWAYS CORP.Statements of Changes in Stockholders' Equity
For the years ended December 31, 2002 and 2001(expressed in thousands of dollars)
CumulativeTranslationAdjustments
DeferredCredit(Debit)
Net loss not yetrecognized as net
pension cost
RetainedEarnings
(AccumulatedDeficits)
SpecialReserve
LegalReserve
CapitalSurplus
CommonStock
CumulativeTranslationAdjustments
DeferredDebit
Net loss notyet
recognizedas net
pension cost
RetainedEarnings
(AccumulatedDeficits)
SpecialReserve
LegalReserve
CapitalSurplus
CommonStock
New taiwan dollars US dollars
Balance on January 1, 2001 $ 21,000,000 4,018,385 105,716 - 2,812,154 - - 3,664,881 778,619 142,211 3,219 - 87,516 - - (53,723
Appropriation of earnings and capital surplus:
Legal reserve - - 245,497 - (245,497) - - - - - 7,829 - (7,829 - - -
Special reserve - - - 317,63 4 (317,634) - - - - - - 9,487 (9,487 - - -
Stock dividends 1,050,000 - - - (1,050,000) - - - 33,485 - - - (33,485 - - -
Cash dividends - - - - (630,000) - - - - - - - (20,091 - - -
Directors' remuneration - - - - (17,409) - - - - - - - (555 - - -
Employees' bonuses - - - - (43,523) - - - - - - - (1,388 - - -
Transfer of gains on disposal of equipment and
donated assets of investee company under equity
method to capital surplus - 286 - - (286) - - - - 9 - - (9 - - -
Increase in net equity due to the change in percentage
of ownership in long-term equity investments
under equity method - 225,777 - - (3,155) - - - - 6,546 - - (98 - - -
Net loss for the year ended December 31, 2001 - - - - (3,174,621) - - - - - - - (93,868 - - -
Decrease in net equity due to recording net loss not
yet recognized as net pension cost in long-term
equity investments under equity method - - - - - (44,359) - - - - - - - (1,267 - -
Deferred debit - - - - - - (558,757 - - - - - - - (15,964 -
Translation adjustments for the year ended
December 31, 2001 - - - - - - - 2,310,401 - - - - - - - 16,429
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34
EVA AIRWAYS CORP.Statements of Cash Flows
For the years ended December 31, 2002, and 2001(expressed in thousands of dollars)
New Taiwan dollars US dollars
2002 2001 2002 2001
Cash flows from operating activities:
Net income (loss) $ 2,637,479 (3,174,621) 76,250 (93,868)
Adjustments to reconcile net income (loss) to net cash flow from
operating activities:
Depreciation 4,270,786 4,326,812 123,469 127,936
Amortization and maintenance expense 1,123,095 859,590 32,469 25,417
Loss (gain) on disposal and obsolescence of property,
plant and equipment 11,743 (104,266) 339 (3,083)
Gain on donated stock (13,510) - (391) -
Provision for loss on devaluation of short-term investments 21,892 40,344 633 1,153
Provision for loss on devaluation of long-term investments 4,000 - 116 -
Amortization of deferred gain from sale and leaseback of fixed assets (670,256) (517,386) (19,377) (15,298)
Amortization of other deferred gain (34,721) (108,328) (1,004) (3,203)
Bad debt losses 33,833 - 978 -
Provision for unrealized exchange loss from borrowings 7,294 17,249 211 493
Gain on disposal of short-term investments (47,209) (52,658) (1,365) (1,557)
Gain on disposal of long-term equity investments (10,050) (11,837) (291) (350)
Investment (gain) loss (141,376) 430,253 (4,087) 12,722
Proceeds from cash dividends of long-term equity investments 221,963 233,163 6,417 6,894
Decrease in notes receivable 2,330 98,337 67 2,810
(Increase) decrease in accounts receivable (including related parties) (1,460,673) 502,483 (42,034) 14,357
Decrease (increase) in other receivables (including related parties) 50,509 (188,455) 1,454 (5,384)
Decrease (increase) in inventories 1,076,609 (704,000) 30,982 (20,114)
(Increase) decrease in prepaid expenses (226,611) 860,128 (6,521) 24,575
Increase in deferred income tax assets (254,693) (129,964) (7,329) (3,713)
Increase in other prepayments (23,639) (145,382) (680) (4,154)
Decrease (increase) in other current assets 3,527 (14,162) 101 (405)
Increase (decrease) in notes and accounts payable
(including related parties) 350,325 (219,330) 10,081 (6,267)
Decrease (increase) in other payables (including related parties) (17,953) 64,320 (517) 1,838
Increase (decrease) in accrued expenses 1,029,677 (985,389) 29,631 (28,154)
Increase (decrease) in unearned revenue 1,248,129 (1,223,392) 35,917 (34,954)
Increase in other current liabilities 141,538 8,943 4,073 256
(Decrease) increase in other liabilities (10,951) 167,987 (315) 4,800
Increase (decrease) in retirement plan liabilities 55,771 (154,874) 1,605 (4,425)
Net change in other financial assets/liabilities (3,791) 558,963 (109) 16,307
Net cash provided by operating activities 9,375,067 434,528 270,773 14,629
35
Cash flows from investing activities:
Increase in short-term investments (1,125,306) (2,525,992) (32,383) (72,171)
Proceeds from disposal of long-term equity investments 20,855 339,292 600 9,838
Payments for purchase of long-term equity investments (174,009) (1,865,579) (5,007) (53,302)
Proceeds from disposal of property, plant and equipment 191,454 6,679,449 5,509 190,841
Payments for purchase of property, plant and equipment (231,638) (1,117,641) (6,666) (31,921)
Increase in refundable deposits and other assets (577,179) (2,789,640) (16,609) (79,704)
Withdrawal of prepaid long-term equity investments 7,962 - 229 -
Increase in deferred charges (1,073,015) (1,104,603) (30,878) (31,560)
Net cash used in investing activities (2,960,876) (2,384,714) (85,205) (67,979)
Cash flows from financing activities:
Increase in short-term borrowings and long-term loans 23,062,913 14,262,673 663,681 407,505
Installment payment for purchase of property, plant and equipment (733,715) (1,215,849) (21,114) (34,104)
Payments of cash dividends - (630,000) - (20,091)
Redemption of short-term borrowings and long-term loans (34,006,694) (10,234,431) (978,610) (292,412)
Installment payment for purchase of inventories (321,246) - (9,244) -
Proceeds from disposal of inventories 2,677,041 - 77,037 -
Proceeds from issuance of common stock 2,310,000 - 66,265 -
Payment of employees' bonuses and directors' remuneration - (60,932) - (1,943)
Net cash (used in) provided by financing activities (7,011,701) 2,121,461 (201,985) 58,955
Effect of exchange rate changes on cash - - (337) (4,139)
Net (decrease) increase in cash (597,510) 171,275 (16,754) 1,466
Cash at beginning of year 2,141,907 1,970,632 61,197 59,731
Cash at end of year $ 1,544,397 2,141,907 44,443 61,197
Additional disclosure of cash flow information:
Cash payments of interest (excluding capitalized interest expense) $ 3,017,449 3,579,975 87,235 105,854
Cash payments of income tax $ 46,407 44,763 1,342 1,324
Supplemental schedule of non-cash investing and financing activities:
Current portion of long-term loans $ 7,279,795 5,625,600 209,491 160,731
Depreciation expense of aircraft in test flight period capitalized to
deferred charges $ - 4,413 - 126
Adjustments of net equity of investee companies and net loss
not yet recognized as net pension cost $ 9,022 178,263 259 5,181
Translation adjustments $ (187,212) 2,310,401 13,434 16,429
Outstanding balance of other payables and other liabilities resulting
from purchase of fixed assets by installments $ 4,356,196 4,441,906 125,358 126,912
Deferred credit (debit) $ 115,228 (558,757) 3,431 (15,964)
36
EVA AIRWAYS CORP.
Notes to Financial StatementsDecember 31, 2002 and 2001
(Amounts not otherwise specified are expressed in thousands of dollars)
(1) Organization and Business Scope
EVA Airways Corp. (the Company) was incorporated on April 7, 1989, as a corporation limited by shares
under special permission of the Ministry of Transportation and Communications and under the Company
Law of the Republic of China (ROC). The Company commenced operations on July 1, 1991.
The Company's business activities are:
1.1. To engage in fixed-wing aircraft transport business, helicopter transport business, scheduled air
transport business and non-scheduled air transport business;
1.2. To carry on the business of freight agent, including operation, transportation and maintenance;
1.3. To repair and maintain fuselages, power engines, navigational instruments and related equipment,
etc;
1.4. To carry on the business of marketing aircraft facilities, equipment and fittings, and of leasing aircraft;
1.5. To process and manufacture machinery and spare parts;
1.6. To publish magazines in the field of aviation;
1.7. To provide on-the-job training delegated by other organizations and entities (no recruitment from the
general public is allowed);
1.8 To engage in maintaining flying facilities for navigational training;
1.9 To deal with airport ground business;
1.10 To handle civil aviation airport terminal business (including passenger and cargo flight business);
1.11 To engage in import and export trading for the foregoing activities (excluding business requiring a
permit);
1.12 To provide consultant services for business operation and management;
1.13 To provide general advertisement services;
1.14 To engage in retailing of tobacco & alcohol;
1.15 To engage in general merchandise activities;
1.16 Retailing of food & beverages;
1.17 Retailing of apparel;
1.18 Retailing of umbrellas;
37
1.19 Retailing of hats & caps;
1.20Retailing of books & stationery;
1.21Retailing of sporting goods;
1.22Retailing of toys & amusement goods;
1.23Retailing of watches & clocks;
1.24Retailing of glasses;
1.25Retailing of weights & measures;
1.26Retailing of jewelry & precious metals.
1.27To carry out any business which is not forbidden or restricted by the applicable laws and regulations,
excluding those requiring a license.
(2) Summary of Significant Accounting Policies
The Company prepared the accompanying financial statements in accordance with ROC generally accepted
accounting principles. The major accounting policies used in preparing the financial statements are
summarized below.
(a) Foreign currency transactions and translation
The Company maintains its books in New Taiwan dollars. Transactions negotiated and settled in
foreign currencies are recorded in New Taiwan dollars at the exchange rates prevailing on the
transaction dates. Assets and liabilities denominated in foreign currencies at year-end are translated
into New Taiwan dollars at the exchange rates prevailing on the balance sheet dates, and unrealized
exchange gains or losses are reflected in the statement of income.
For equity investments in foreign subsidiary companies which are accounted for by the equity method,
the translation differences resulting from translating foreign financial statements from the functional
currency to the reporting currency are reported as cumulative translation adjustments. Cumulative
translation adjustments are reported as a separate component of stockholders' equity.
(b) US dollar financial statements presentation
Financial statements stated in New Taiwan dollars are translated into US dollars at the exchange rates
prevailing on the balance sheet dates, with the exception of stockholders' equity accounts, which are
translated at historical rates, and revenues, costs and expenses, which are translated at the average
exchange rates during the reporting period. Translation differences resulting from translation of the
financial statements into US dollars are recorded as cumulative translation adjustments, a separate
component of stockholders' equity.
38
(c) Translation of foreign currency for foreign operating units
The Company regards the aircraft purchased with its own US dollar capital and US dollar loans and
operated for international passengers and cargo transportation business as "foreign operating units".
The aircraft and the related US dollar loans at year-end are translated into New Taiwan dollars at the
exchange rates prevailing on the balance sheet dates. The translation differences resulting from the
translation of the aircraft and the related US dollar loans into New Taiwan dollars at the exchange rate
prevailing on the balance sheet date and historical rates are reported as cumulative translation
adjustments. The aircraft stated in US dollars are depreciated by using the same method and the same
useful lives, and the resulting US dollar depreciation amounts are translated into New Taiwan dollars at
the current year's average exchange rate. In addition, the translation differences resulting from the
translation of the refundable deposits for aircraft leases into New Taiwan dollars at the exchange rate
prevailing on the balance sheet date and historical rates are also reported as cumulative translation
adjustments.
(d) Sale and leaseback
The Company sold and leased back aircraft under operating lease agreements. The gains on the sales
of the aircraft are deferred and amortized on the straight-line method over the lease terms.
(e) Cash and cash equivalents
Cash includes cash on hand, savings and checking deposits, fixed time deposits, cash equivalents, etc.
The Company considers all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
(f) Short-term investments
Short-term investments are stated at the lower of aggregate cost or market value. Cost is determined
by using the weighted-average method.
(g) Inventories
Inventories represent parts and supplies for maintenance of aircraft, and merchandise to sell during
flights. Except for merchandise, which is stated at the lower of cost (weighted-average method) or
market value, parts and supplies are stated at cost (weighted-average method) less allowance for slow-
moving and obsolete items. Market value represents net realizable value.
39
(h) Long-term equity investments and consolidated financial statements
Long-term equity investments are accounted for by the equity method where the percentage of
ownership in an investee exceeds 20%. Otherwise, long-term equity investments are accounted for by
the cost method.
For a long-term equity investment accounted for by the equity method, where the investment cost is
different from the Company's net equity in the investee company upon the investment, the difference is
amortized over a period of 5 to 20 years. The period of amortization is assessed and determined on a
case by case basis.
When an investee issues new shares and the Company fails to subscribe to the new shares in
proportion to the Company's ownership percentage in the investee, thus resulting in a change of net
equity in the investee, the resulting difference is accounted for as an increase or decrease in capital
surplus and long-term equity investment.
Unrealized transaction gains or losses from inter-company transactions between the Company and its
investees accounted for by the equity method are deferred. Unrealized gains or losses derived from
the transactions of depreciable or amortizable assets are amortized over the useful life of the related
assets.
The Company does not prepare consolidated financial statements to include the accounts of its
subsidiaries over which the Company has, directly or indirectly, over 50% ownership and has
controlling influence over their operating and financial policies and decisions. This is because all such
controlled subsidiaries have total assets and operating revenues not exceeding 10% of the Company's
non-consolidated total assets and operating revenues and thus are not consolidated in accordance with
the ruling of the ROC SFC. Under ROC SFC requirements, beginning in 1995, if the combined
revenues and total assets of all such unconsolidated subsidiaries exceed 30 percent of the Company's
unconsolidated total assets and operating revenues, then each individual subsidiary with total assets or
operating revenues greater than 3 percent of the Company's respective unconsolidated amount shall
be consolidated. Such subsidiaries shall be included in the consolidated financial statements thereafter,
unless the percentage of the combined total amounts of such subsidiaries decrease to less than 20
percent of the Company's respective unconsolidated amounts. As of December 31, 2002, the
Company's non-consolidated subsidiaries included Evergreen Airline Services Corp., Evergreen
Airways Service (Macau) Ltd., Evergreen Aviation Technologies Corp., Evergreen Air Cargo Service
Corp., and Hsiang-Li Investment Corp..
40
(i) Property, plant and equipment, and related depreciation
Property, plant and equipment are stated at acquisition cost. For construction of buildings and
purchase of machinery and equipment, the Company capitalizes related interest costs incurred prior to
commencement of the use of such assets and includes such capitalized interest costs in the cost of
related assets. Depreciation of plant and equipment is provided over the estimated useful lives of the
respective assets on the straight-line method.
From 2001, gains on the disposal of such assets are presented as non-operating income. Pursuant to
the declaratory statutes of the ROC Company Law, such gains occurring before 2000 have been
presented as unappropriated earnings upon approval at a stockholders' meeting in 2002.
(j) Deferred charges
Deferred charges principally include costs for computer software, leasehold improvements, trademarks,
air route development, training of navigators and aircraft maintenance personnel and "D" check
maintenance for aircraft and engines. These costs are amortized on the straight-line method over the
shorter of the estimated years in which such assets are economically beneficial to the Company's
operation or the lease terms.
(k) Employee retirement plan
The Company has established a retirement plan pursuant to the ROC Labor Standards Law and
contributes retirement funds consisting of 2% of total salaries from January 2000 to May 2001 and
10.7% from June 2001 to December 2002 on a monthly basis to an account maintained by the
government-designated institution.
The Company implemented ROC Statement of Financial Accounting Standards (SFAS) No. 18,
"Accounting for Pensions". SFAS No. 18 requires the Company to recognize a minimum pension
liability, as of the balance sheet date, equal to the amount by which the actuarial present value of the
accumulated benefit obligation exceeds the fair value of the retirement plan's assets, and to recognize
net periodic pension costs. The net transition assets or obligations are amortized on the straight-line
method over 15 years.
(l) Revenue recognition
Passenger ticket sales are recorded as unearned revenue, included in current liabilities, and
41
recognized as revenue when the services are provided.
(m) Income tax
The Company adopted ROC Statement of Financial Accounting Standards (SFAS) No. 22, "Accounting
for Income Tax". Under this method, the amounts of deferred tax liabilities or assets are recognized for
future tax effects attributable to temporary differences, loss carryforwards, and investment tax credits.
The measurement of deferred tax assets or liabilities is based on provisions of enacted tax law. A
valuation allowance is provided on deferred tax assets that may not be realized in the future.
Deferred income tax assets or liabilities are classified as current or noncurrent based on the
classification of the related assets or liabilities. If no assets or liabilities are related, deferred income
tax assets or liabilities are classified according to the period of realization.
The tax imputation system was adopted in accordance with the amendment of the ROC Income Tax
Law. Under the new system, the Company may retain the earnings after December 31, 1997, by
paying a 10% surtax on such undistributed earnings, and the surtax is accounted for as income tax
expense when due.
(n) Derivative financial instruments
All derivatives are to be recognized as assets or liabilities on the balance sheet and measured at fair
value. Change in the fair value of derivatives should be recognized either in net income or in deferred
debit or credit (a separate component of stockholders' equity), depending on the designated purpose
of the derivative. This accounting change had no material effect to the financial statements.
(o) Earnings (loss) per share
The computation of earnings (loss) per share is based on net income (loss) divided by the weighted-
average number of common shares outstanding. The increase in the number of outstanding shares
through distribution of stock dividends from retained earnings or capital surplus is included in the
outstanding shares retroactively. Also, the reduction of common stock to offset accumulated losses is
accomplished by reducing the number of outstanding shares retroactively.
42
(3) Cash and cash equivalents
The components of cash as of December 31, 2002 and 2001, are summarized below:
New Taiwan dollars US dollars
2002 2001 2002 2001
Cash on hand $ 47,482 72,326 1,366 2,066
Cash in bank 1,496,915 2,069,581 43,077 59,131
$ 1,544,397 2,141,907 44,443 61,197
(4) Short-term investments
The components of short-term investments as of December 31, 2002 and 2001, are summarized below:
New Taiwan dollars US dollars
2002 2001 2002 2001
Mutual funds $ 3,877,346 2,846,490 111,578 81,329
Publicly traded stock 191,086 49,427 5,499 1,412
4,068,432 2,895,917 117,077 82,741
Less: provision for investment devaluation (62,236) (40,344) (1,791) (1,153)
$ 4,006,196 2,855,573 115,286 81,588
(5) Inventories
The components of inventories as of December 31, 2002 and 2001, are summarized below:
New Taiwan dollars US dollars
2002 2001 2002 2001
Rotable and expendable parts $ 7,137,851 7,416,914 205,406 211,912
Consumables for use and merchandise
for sale during flight 380,546 384,321 10,951 10,981
Fuel for aircraft 2,188 20,236 63 578
Allowance for obsolete inventories (772,146) (86,367) (22,220) (2,468)
$ 6,748,439 7,735,104 194,200 221,003
The above inventories were fully insured.
43
(6) Long-term Equity Investments
Details of the Company's long-term equity investments, including the related investment income or loss, as of
December 31, 2002 and 2001, are summarized as follows:
December 31, 2002 2002Book value Investment income (loss)
Shareholding New Taiwan New TaiwanInvestee percentage (%) dollars US dollars dollars US dollars
Accounted for by the equity method:
Evergreen Airline Service Corp. 56.33 $ 344,243 9,906 47,452 1,372
RTW Air Services (s) Pte. Ltd. 49.00 20,824 599 6,789 196
Green Siam Air Services Co., Ltd. 49.00 21,077 607 17,038 492
Evergreen Sky Catering Corp. 49.80 639,626 18,406 54,751 1,583
Evergreen Airways Service (Macau) Ltd. 99.00 488,014 14,044 148,119 4,282
Uni Airways Corp. 18.09 475,402 13,681 (316,746) (9,157)
Ever Voyage Transport Corp. 43.67 112,552 3,239 8,532 247
Evergreen Aviation Technologies Corp. 80.00 2,334,636 67,184 203,798 5,892
Evergreen Security Corp. 31.25 25,659 738 7,721 223
Evergreen Air Cargo Service Corp. 55.80 610,364 17,564 (27,591) (798)
Hsiang-Li Investment Corp. 99.99 993,042 28,577 (7,202) (208)
Uni Japan Co., Ltd. 49.50 584 17 (1,285) (37)
6,066,023 174,562 141,376 4,087
Accounted for by the cost method:
Abacus International Holding Ltd. 2.11 115,743 3,331 - -
SunShing Corp. 19.50 40,365 1,162 - -
Trade-Van Information Services Co., Ltd. 6.10 97,983 2,820 - -
Taiwan High Speed Rail Corp. 2.53 1,250,000 35,971 - -
Hsin-Tao Power Corp. 9.69 484,612 13,946 - -
Technology Partner II Venture
Capital Corp. 5.88 20,000 575 - -
Chung Hwa Express Co., Ltd. 10.00 20,000 575 - -
Taiwan Fixed Network Corporation 1.30 $ 1,200,000 34,532 - -
Evergreen Development Corp. 9.47 870,000 25,036 - -
Pan-Pacific Venture Capital Co., Ltd. 1.50 19,800 570 - -
4,118,503 118,518 - -
Total 10,184,526 293,080 141,376 4,087
Less: Provision for long-term investment
devaluation (4,000) (116) - -
$ 10,180,526 292,964 141,376 4,087
44
December 31, 2001 2001Book value Investment income (loss)
Shareholding New Taiwan New TaiwanInvestee percentage (%) dollars US dollars dollars US dollars
Accounted for by the equity method:
Evergreen Airline Service Corp. 56.33 $ 324,578 9,274 85,823 2,538
RTW Air Services (s) Pte. Ltd. 51.00 13,818 395 2,032 60
Green Siam Air Services Co., Ltd. 51.00 10,931 312 8,852 262
Evergreen Sky Catering Corp. 49.80 629,695 17,991 64,607 1,910
Evergreen Airways Service (Macau) Ltd. 99.00 481,659 13,762 136,602 4,039
Uni Airways Corp. 18.43 626,028 17,887 (747,318) (22,097)
Ever Voyage Transport Corp. 43.67 104,020 2,972 7,013 207
Evergreen Aviation Technologies Corp. 79.80 2,115,184 60,434 32,667 966
Everrich Duty Free Corp. (Note 2) - - - 1,835 54
Evergreen Security Corp. 31.25 17,938 512 930 28
Evergreen Air Cargo Service Corp. 55.80 637,955 18,227 (23,600) (698)
Hsiang-Li Investment Corp. 99.99 1,000,244 28,578 304 9
5,962,050 170,344 (430,253) (12,722)
Accounted for by the cost method:
Abacus International Holding Ltd. 2.00 102,233 2,921 - -
SunShing Corp. 19.50 40,365 1,153 - -
Trade-Van Information Services Co., Ltd. 6.63 105,604 3,017 - -
Taiwan High Speed Rail Corp. 2.53 1,250,000 35,714 - -
Hsin-Tao Power Corp. 9.69 484,612 13,846 - -
e'Com International Inc. 3.47 1,040 30 - -
Technology Partner II Venture
Capital Corp. 5.88 20,000 572 - -
Chung Hwa Express Co., Ltd. 10.00 20,000 572 - -
Taiwan Fixed Network Corporation 1.30 1,200,000 34,286 - -
Evergreen Development Corp. 9.47 870,000 24,857 - -
Pan-Pacific Venture Capital Co., Ltd. 1.50 19,800 566 - -
Travel Exchange Asia Holdings Ltd. (Note 1) - 7,962 227 - -
4,121,616 117,761 - -
Total $ 10,083,666 288,105 (430,253) (12,722)
(Note 1) represents prepayments for stock subscription returned in 2002.
(Note 2) the company sold all shares of Everrich Duty Free Corp. during Auguest, 2001.
45
Details of increases in long-term equity investments of the Company in 2002 and 2001 are summarized as
follows:
Unit: thousands of shares2002 2001
Amounts AmountsInvestee Shares New Taiwan Shares New Taiwan
dollars US dollars dollars US dollars
Accounted for by the equity method:
Evergreen Airline Service Corp. - $ - - 2,979 54,427 1,555
RTW Air Services(s) Pte. Ltd. - - - 165 4,915 140
Green Siam Air Services Co., Ltd. - - - 42 3,520 101
Uni Airways Corp. 16,586 165,857 4,773 40,002 400,018 11,429
Ever Voyage Transport Corp. - - - 2,000 28,000 800
Evergreen Aviation Technologies Corp. 500 5,450 157 - - -
Evergreen Air Cargo Service Corp. - - 30,961 314,700 8991
Hsiang-Li Investments Corp. - - 99,994 999,940 28,570
Uni Japan Co., Ltd. - 2,701 77 - - -
174,008 5,007 1,805,520 51,586
Accounted for by the cost method:
Trade-Van Information Services Co., Ltd. - - - 10 164 5
Hsin-Tao Power Corp. - - - 5,976 59,762 1,707
Travel Exchange Asia Holdings Ltd. - - - - 133 4
Abacus International Holding Ltd. 12 13,511 389 - - -
13,511 389 60,059 1,716
Total $ 187,519 5,396 1,865,579 53,302
Details of selling long-term equity investments of the Company in 2002 and 2001 are summarized as
below:
Unit: thousands of shares2002
CostGain (loss) on disposal of
long-term investment
Investee SharesNew Taiwan New Taiwan
dollarsUS dollars
dollarsUS dollars
Accounted for by the equity method:
Green Siam Air services Co., Ltd. 4 $ 504 15 432 13
RTW Air Service(s) Pte. Ltd. 30 758 22 256 7
Uni Japan Co., Ltd. - 882 25 577 17
2,144 62 1,265 37
46
Accounted for by the cost method:
Trade-Van Information Services Co., Ltd. 934 7,621 219 9,191 266
e' Com International Inc. 104 1,040 30 (406) (12)
Travel Exchange Asia Holdings Ltd. - 7,962 229 - -
16,623 478 8,785 254
$ 18,767 540 10,050 291
2001
CostGain (loss) on disposal of
long-term investment
Investee SharesNew Taiwan New Taiwan
dollarsUS dollars
dollarsUS dollars
Accounted for by the equity method:
Everrich Duty Free Corp. 15,200 $ 318,769 9,108 431 13
Accounted for by the cost method:
Trade-Van Information Services Co., Ltd. 1,041 8,686 248 11,406 337
$ 327,455 9,356 11,837 350
(7) Plant and Equipment
In 2002 and 2001, the Company capitalized the interest expenses on construction of building and purchase
of aircraft amounting to NT$88,849 thousands (US$2,569 thousands) and NT$164,410 thousands
(US$4,861 thousands), respectively. The monthly interest rates on above transactions were 0.31%~0.40%
and 0.36%~0.59%, respectively.
As of December 31, 2002 and 2001, insurance coverage for plant and equipment amounted to
approximately NT$53,622,762 thousands (US$1,543,101 thousands) and NT$62,403,624 thousands
(US$1,782,961 thousands), respectively.
47
(8) Deferred Charges
As of December 31, 2002 and 2001, deferred charges, net of amortization, consisted of the following:
New Taiwan dollars US dollars
2002 2001 2002 2001
Computer software $ 251,911 249,601 7,249 7,132
Leasehold improvements 99,383 111,976 2,860 3,199
Telephone installation fees 5,168 7,785 149 222
Trademarks 1,495 1,902 43 54
Air flight route development costs 92,204 180,582 2,653 5,160
Navigator training costs 195,431 306,945 5,624 8,770
Maintenance for aircraft and engines 1,991,467 1,818,738 57,308 51,964
Others 48,329 57,939 1,391 1,655
$ 2,685,388 2,735,468 77,277 78,156
(9) Short-term Borrowings
Details of short-term borrowings as of December 31, 2002 and 2001, are summarized as follows:
New Taiwan dollars US dollars
2002 2001 2002 2001
Unsecured loans $ 3,552,000 6,207,000 102,216 177,343
Commercial paper, net of prepaid
interest of NT$1,208 thousands
(US$35 thousands) for 2002 and
NT$11,712 thousands (US$335
thousands) for 2001 1,238,792 3,778,288 35,649 107,951
$ 4,790,792 9,985,288 137,865 285,294
The interest expenses on the aforementioned short-term borrowings are calculated based on floating interest
rates. For the years ended December 31, 2002 and 2001, the interest rates were 1.02%~2.30% and
2.00%~6.25%, respectively. As of December 31, 2002 and 2001, the unused credit line amounted to
approximately NT$6,941,510 thousands (US$199,756 thousands) and NT$1,890,450 thousands
(US$54,013 thousands), respectively.
48
(10) Bonds Payable
As of December 31, 2002 and 2001, the details of bonds payable were as follows:
Description New Taiwan dollars US dollars
Annual Issue
Guaranteed by interest rate date 2002 2001 2002 2001
Bonds Payable Taiwan Cooperative
Bank 7.400% 1998. 10 $ 500,000 500,000 14,388 14,286
Bonds payable Bank of Taiwan 6.450% 1999.01 500,000 500,000 14,388 14,286
Bonds payable Central Trust of China 5.750%~6.080% 1999. 07 400,000 500,000 11,511 14,286
Bank of Taiwan 5.750%~6.080% 1999. 07 600,000 800,000 17,267 22,856
Bonds payable Industrial Bank of Taiwan 5.330% 2000.01 500,000 500,000 14,388 14,286
Farmers Bank 5.525% 2000.01 160,000 160,000 4,605 4,571
Bank of Taiwan 5.525% 2000.01 400,000 400,000 11,511 11,429
Bonds payable Shanghai Commercial
& Savings Bank 5.470% 2000.07 300,000 300,000 8,633 8,571
Chinatrust Commerical
Bank 5.480% 2000.07 500,000 500,000 14,388 14,286
Bank of Panhsin 5.640% 2000.07 300,000 300,000 8,633 8,571
Grand Commercial Bank 5.530% 2000.07 300,000 300,000 8,633 8,571
Grand Commercial Bank 5.530% 2000.07 200,000 200,000 5,756 5,714
Bonds payable International Commercial
Bank of China 5.250% 2000.12 500,000 500,000 14,388 14,286
(United World
Chinese Commercial Bank) 5.250% 2000.12 500,000 500,000 14,388 14,286
Bank of Taiwan 5.250% 2000.12 400,000 400,000 11,511 11,429
Farmers Bank 5.250% 2000.12 400,000 400,000 11,511 11,429
Bonds payable Taipei Bank 3.700% 2001.07 500,000 500,000 14,388 14,286
Sub-total 6,960,000 7,260,000 200,287 207,429
Less: current portion (1,300,000) (300,000) (37,410 ) (8,572)
$ 5,660,000 6,960,000 162,877 198,857
49
(11) Long-term Loans
As of December 31, 2002 and 2001, the details of long-term loans were as follows:
Nature Interest rate New Taiwan dollars US dollars
2002 2001 2002 2001
Secured loans:
Land and buildings 4.88~6.35% $ 2,240,000 2,600,000 64,461 74,285
Aircraft
NT$ loans 2.16~5.87% 7,403,424 8,556,237 213,048 244,464
US$ loans 2.20~4.67% 6,678,522 8,406,042 192,188 240,172
14,081,946 16,962,279 405,236 484,636
Engines
NT$ loans 5.43~5.86% 500,000 500,000 14,388 14,286
US$ loans 2.35~4.48% 193,438 384,929 5,567 10,998
693,438 884,929 19,955 25,284
Sub-total 17,015,384 20,447,208 489,652 584,205
Unsecured loans: 1.75~7.25% 13,565,910 15,636,831 390,386 446,767
Total 30,581,294 36,084,039 880,038 1,030,972
Less: current portion (5,979,795) (5,325,600) (172,081) (152,159)
$ 24,601,499 30,758,439 707,957 878,813
The remaining balances of the loans are due as follows:
Year due New Taiwan dollars US dollars
2003 $ 5,979,795 172,081
2004 6,249,167 179,832
2005 6,518,800 187,591
2006 3,333,166 95,919
2007 1,419,926 40,861
2008 and following 7,080,440 203,754
$ 30,581,294 880,038
Pursuant to the syndication loan agreement signed with Chiao-Tung Bank and fourteen other banks, the
Company's liabilities-to-equity ratio and current ratio must be maintained at 300% and 75%, respectively, at
the year-end. If any aircraft purchased with the financing of such loans is disposed of or sold, the Company
must repay the loan immediately.
50
As of December 31, 2002 and 2001, the unused credit line for long-term loans amounted to NT$339,000
thousands (US$9,755 thousands) and NT$743,400 thousands (US$21,240 thousands), respectively.
(12) Other Installments Payable
The Company purchased aircraft spare parts by installments. As of December 31, 2002, the details were
as follows:
2002
New Taiwan dollars US dollars
Installment amount payable $ 2,355,795 67,793
Less: current portion (865,648) (24,911)
$ 1,490,147 42,882
The current portion of installment amount payable was recorded as other payables. The remaining
balances of the payables are due as follows:
Year due New Taiwan dollars US dollars
2003 $ 865,648 24,911
2004 865,648 24,911
2005 624,499 17,971
$ 2,355,795 67,793
The interest expenses of the aforementioned installments are calculated based on floating interest rates. For
the year ended December 31, 2002, the interest rates were 3.40%~4.49%. There were no such
transactions during 2001.
(13) Aircraft Payable
The Company purchased aircraft by installments. As of December 31, 2002 and 2001, the details were as
follows:
2002
New Taiwan dollars US dollars
Aircraft payable $ 20,083,497 577,942
Less: current portion (2,053,182) (59,084)
$ 18,030,315 518,858
51
2001
New Taiwan dollars US dollars
Aircraft payable $ 16,455,906 470,168
Less: current portion (1,449,075) (41,402)
$ 15,006,831 428,766
The current portion of aircraft payable was recorded as other payables. The remaining balances of the
payables are due as follows:
Year due New Taiwan dollars US dollars
2003 $ 2,053,182 59,084
2004 2,073,124 59,658
2005 2,059,890 59,277
2006 2,290,598 65,917
2007 1,965,010 56,547
2008 and following 9,641,693 277,459
$ 20,083,497 577,942
The interest expenses of the aforementioned borrowings are calculated based on floating interest rates. For
the years ended December 31, 2002 and 2001, the average interest rates were 1.80%~6.77% and
2.39%~6.77%, respectively. The pledges for the aircraft payable in 2002 and 2001 are disclosed at note
19.
(14) Stockholders' Equity
(a) Common stock
As of December 31, 2002, the Company's authorized share capital consisted of 3,000,000 thousand
shares of common stock, at NT$10 par value per share, of which 2,425,000 thousand shares were
issued and outstanding.
On April 19, 2001, the Company's stockholders resolved to transfer unappropriated earnings of
NT$1,050,000 thousands by issuing 105,000 thousand shares of common stock, at NT$10 par value
per share. The stock issuance was authorized by and registered with the government authorities on
July 12, 2001.
On June 18, 2002, the Company's stockholders resolved to make up deficiencies from special reserve
52
of NT$317,634 thousands (US$9,487 thousands), legal reserve of NT$351,213 thousands
(US$11,048 thousands) and capital surplus of NT$1,845,667 thousands (US$66,655 thousands). In
addition the Company transferred capital surplus arising from gains on disposal of equipment to
retained earnings from before 2000 of NT$155,458 thousands (US$4,968 thousands). Furthermore,
they resolved to issue 220,000 thousand shares of common stock with NT$10.5 issue price per share.
The stock issuance was authorized by and registered with the government authorities on December 26,
2002.
(b) Capital surplus, legal reserve and restrictions on appropriations of earnings
A summary of capital surplus as of December 31, 2002 and 2001, is as follows:
2002 2001
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Cash subscription in excess of par
value of shares $ 1,464,333 52,084 3,200,000 115,584
Gain on disposal of property, plant
and equipment, net of income tax - - 155,458 4,968
Gain on disposal of property, plant
and equipment of investee company 1,668 53 1,730 55
Increase in net equity due to change
in percentage of ownership by
long-term equity method 237,374 6,899 238,556 6,934
Donated assets 648,704 21,225 648,704 21,225
$ 2,352,079 80,261 4,244,448 148,766
The ROC Company Law stipulates that realized capital surplus should not be credited to capital except
for making up deficiencies of the Company. The realized capital surplus on the aforementioned
includes the premiums on shares issued above their par value and earnings from gifts received. In
addition, the transferred capital surplus from issuance of shares or other events in accordance with
article 8 of the ROC Securities and Exchange Law and the ROC Company Law can be credited to
capital upon the condition that the aforementioned capital surplus has been approved and registered
by the competent authority in the previous year.
Further, the amount of the capital surplus from the premiums on shares issued above their par value
and earnings from gifts received credited to capital should not exceed 10 percent of the amount of
paid-in capital in one year.
53
The ROC Company Law stipulates that the Company must retain 10% of its annual earnings, as
defined in the Law, until such retention equals the amount of authorized share capital. This retention is
accounted for by transfers to legal reserve, upon approval at the stockholders' meeting. Legal reserve
may be used to offset an accumulated deficit and cannot be distributed as cash dividends to
stockholders. However, one-half of legal reserve may be converted to share capital when it reaches an
amount equal to one-half of issued share capital, upon approval by the Company's stockholders.
When the legal reserve reaches over fifty percent of the authorized capital, the Company may
distribute the amount in excess as cash dividends.
The Company's articles of incorporation stipulate that the Company must appropriate employees'
bonuses of not less than 1% of net earnings of each year, and bonuses for directors and supervisors of
not more than 5% of net earnings of each year. Such appropriations can only be made after offsetting
accumulated deficit and appropriation of legal reserve, and must be accounted for as a reduction in
retained earnings.
The related information on employees' bonus and directors' remuneration during 2001 was as follows:
2001
New Taiwan dollars US dollars
Employees' bonus-cash $ 43,523 1,388
Directors' remuneration 17,409 555
$ 60,932 1,943
If the related expenditures listed above were taken as expenses during 2001, the related imputed loss
per share (after tax) would be NT$1.47 (US$0.04).
According to ROC SFC regulations, beginning 2002, the appropriation of employees' bonuses and
bonuses for directors and supervisors should be resolved by stockholders, and the related information
can be found on web sites such as Information Disclosure Station after the meeting.
(c) Cumulative translation adjustments
According to note 2(c), the Company recorded cumulative translation adjustments amounting to
NT$5,713,871 thousands and NT$5,904,757 thousands as of December 31, 2002 and 2001,
respectively, and booked these as components of stockholders' equity.
(d) Unappropriated earnings, imputation credit account and tax credit percentage
54
2002 2001
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Unappropriated earnings (loss) after 1998 $ 2,637,542 76,252 (2,669,971) (79,294)
Effective January 1, 1998, the ROC adopted the imputed tax system. Under the new tax system, the
income tax paid by the Company should be appropriated to the stockholders together with the
appropriation of earnings. A stockholder who is a resident of the ROC can use the imputed tax
appropriated by the Company as a credit against their income tax liability. As of December 31, 2002
and 2001, details of the ICA and the related tax credit percentage were as follows:
2002 2001
New Taiwan US New Taiwan US
dollars dollars dollars dollars
ICA $ 128,749 3,705 54,358 1,553
Tax credit percentage 4.88% 2.91%
(Estimated) (Actual)
(e) Earnings per share (expressed in thousands of dollars and shares, except for earnings per share
expressed in dollars)
New Taiwan dollars 2002 US dollars 2002
Dollars Shares Earnings per Share Dollars Shares Earnings per Share
Before After Before After Before After Before After
Income Income Income Income Income Income Income Income
Tax Tax Tax Tax Tax Tax Tax Tax
Net income $ 2,417,479 2,637,479 $69,890 76,250
Basic earnings per share:
Net income belonging to
common stockholders $ 2,417,479 2,637,479 2,208,616 $1.09 $1.19 $69,890 76,250 2,208,616 $0.03 $0.03
New Taiwan dollars 2001 US dollars 2001
Dollars Shares Earnings per Share Dollars Shares Earnings per Share
Before After Before After Before After Before After
Income Income Income Income Income Income Income Income
Tax Tax Tax Tax Tax Tax Tax Tax
Net loss $(3,284,621) (3,174,621) $(97,121) (93,868)
Basic loss per share:
Net loss belonging to
common stockholders
$(3,284,621) (3,174,621) 2,205,000 $(1.49) $(1.44) $(97,121) (93,868) 2,205,000 $(0.04) $(0.04)
55
(15) Income Tax
(a) The Company's earnings are subject to a maximum income tax rate of 25%. The components of
income tax benefits for the years ended December 31, 2002 and 2001, are summarized as follows:
2002 2001
New Taiwan US New Taiwan US
Dollars dollars Dollars dollars
Income tax expense-current $ (34,693) (1,003) (19,964) (590)
Income tax benefit-deferred 254,693 7,363 129,964 3,843
$ 220,000 6,360 110,000 3,253
(b) For the years ended December 31, 2002 and 2001, the differences between expected income tax
(expenses) benefits at statutory rates and income tax benefits as reported in the accompanying
financial statements are summarized as follows:
2002 2001
New Taiwan US New Taiwan US
Dollars dollars Dollars dollars
Expected income tax (expense) benefits $ (604,370) (17,472) 821,155 24,280
Gain on disposal of long-term equity
investments and short-term investments 15,209 440 18,840 557
Investment gain (loss) recognized under
equity method-unrealized 34,344 993 (105,000) (3,105)
Investment loss-realized - - 432,000 12,774
Dividend income (27,708) (801) (8,300) (245)
Increase (decrease) in investment tax credits 552,166 15,963 (184,800) (5,464)
Permanent difference in depreciation expenses (138,394) (4,001) (125,200) (3,702)
Exchange losses recorded as translation
adjustments 164,145 4,745 111,600 3,300
Allowance for deferred tax assets, net 595,246 17,208 (1,183,631) (34,998)
Others (370,638) (10,715) 333,336 9,856
Income tax benefit reported $ 220,000 6,360 110,000 3,253
56
(c) For the years ended December 31, 2002 and 2001, the deferred income tax benefits are summarized
as follows:
2002 2001
New Taiwan US dollars New Taiwan US dollars
Dollars Dollars
Loss carryforwards $ (350,460) (10,132) 1,226,100 36,254
Investment tax credits (292,434) (8,454) (75,120) (2,221)
Unrealized exchange (losses) gains (5,349) (155) 88,923 2,629
Provision (reversal) to reduce inventory
to market 158,927 4,595 (12,331) (365)
Purchase of fix assets by installments,
adjusted for tax purposes 135,357 3,913 94,199 2,785
Deferred gains on disposal of fixed assets,
adjusted for tax purposes 8,928 258 (17,714) (523)
Allowance for deferred tax assets, net 595,246 17,208 (1,183,631) (34,998)
Others 4,478 130 9,538 282
$ 254,693 7,363 129,964 3,843
(d) Deferred income tax assets in the accompanying balance sheets as of December 31, 2002 and 2001,
are summarized as follows:
2002 2001
New Taiwan US New Taiwan US
Dollars dollars Dollars dollars
Current:
Deferred income tax assets- current $ 674,279 19,404 331,700 9,477
Less: valuation allowance for deferred
income tax assets-current - - - -
$ 674,279 19,404 331,700 9,477
Noncurrent:
Deferred income tax assets- noncurrent $ 1,122,468 32,301 $1,805,600 51,589
Less: valuation allowance for deferred
income tax assets- noncurrent (690,090) (19,858) (1,285,336) (36,724)
$ 432,378 12,443 520,264 14,865
Deferred income tax assets°–gross $ 1,796,747 51,705 2,137,300 61,066
Valuation allowance for deferred
income tax assets $ (690,090) (19,858) (1,285,336) (36,724)
57
The components of the deferred income tax assets as of December 31, 2002 and 2001, are
summarized as follows:
2002 2001
New Taiwan US New Taiwan US
Dollars dollars Dollars dollars
Investment tax credits $ 153,166 4,408 445,600 12,732
Loss carryforwards 875,640 25,198 1,226,100 35,032
Unrealized exchange losses 55,651 1,601 61,000 1,743
Allowance for obsolete inventories 193,027 5,555 34,100 974
Deferred gains on disposal of fixed assets,
adjusted for tax purposes 133,047 3,829 124,119 3,546
Purchase of fixed assets by installments,
adjusted for tax purposes 369,657 10,638 234,300 6,694
Others 16,559 476 12,081 345
Less: valuation allowance for deferred
income taxassets (690,090) (19,858) (1,285,336) (36,724)
$ 1,106,657 31,847 851,964 24,342
The expiration years of the remaining investment tax credits and loss carryforwards are summarized as
follows:
Tax benefit
Investment tax credits Loss carryforwards
Expiry year New Taiwan US New Taiwan US
Dollars Dollars Dollars Dollars
2004 $ 45,707 1,315 - -
2005 30,876 889 875,640 25,198
2006 76,583 2,204 - -
$ 153,166 4,408 875,640 25,198
The Company's income tax returns have been examined and assessed through 2000 by the R.O.C
income tax authority.
58
(16) Retirement Plans
The Company adopted SFAS No. 18, "Accounting for Pensions". Net retirement plan liabilities based on
the actuarial computation at December 31, 2002 and 2001, are detailed as follows:
December 31, 2002 December 31, 2001
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Benefit obligation:
Vested benefit obligation $ (18,736) (539) (34,250) (978)
Nonvested benefit obligation (1,179,622) (33,946) (759,521) (21,701)
Accumulated benefit obligation (1,198,358) (34,485) (793,771) (22,679)
Projected effects of salary adjustments (492,630) (14,176) (496,035) (14,173)
Projected benefit obligation (1,690,988) (48,661) (1,289,806) (36,852)
Plan assets at fair value 416,665 11,990 212,332 6,067
Projected benefit obligation in excess
of plan assets (1,274,323) (36,671) (1,077,474) (30,785)
Unrecognized transition obligation 45,652 7,069 272,946 7,798
Unrecognized pension loss 555,373 15,982 368,031 10,515
Accrued pension expense - - 18,969 542
Pension liabilities that need to be accrued (308,395) (8,875) (144,941) (4,141)
Accrued employee retirement
liabilities $ (781,693) (22,495) (562,469) (16,071)
The components of net pension cost in 2002 and 2001 are summarized as follows:
2002 2001
New Taiwan US New Taiwan US
dollars dollars dollars dollars
Service cost $ 175,440 5,072 174,193 5,151
Interest cost 62,865 1,817 64,506 1,907
Actual return on plan assets (7,202) (208) (8,588) (254)
Amortization:
Unrecognized net transition obligation 32,668 945 27,294 807
Net pension cost $ 263,771 7,626 257,405 7,611
Actuarial assumptions at December 31, 2002 and 2001, are summarized as follows:
59
2002 2001
Discount rate 3.75% 5.0%
Rate of increase in future compensation levels 2.50% 4.0%
Expected long-term rate of return on plan assets 3.75% 5.0%
As of December 31, 2002 and 2001, the retirement fund deposited in the Central Trust of China was
NT$409,464 thousands (US$11,783 thousands) and NT$212,332 thousands (US$6,067 thousands),
respectively.
(17) Financial Instruments
(a) Interest rate swap agreements
For the years ended December 31, 2002 and 2001, the Company had several interest rate swap
agreements to hedge its exposure to fluctuations in interest rates on long-term loans. The transactions
resulted in net interest expense of NT$212,424 thousands (US$6,141 thousands) and NT$72,732
thousands (US$2,151 thousands), respectively, and other revenue of NT$1,570 thousands (US$46
thousands) for 2001. As of December 31, 2002, the nominal amounts of the outstanding interest rate
swap agreements amounted to US$177,335 thousands and NT$400,000 thousands (US$11,511
thousands). As of December 31, 2001, the nominal amounts of the outstanding interest rate swap
agreements amounted to US$241,171 thousands and NTD$600,000 thousands (US$17,143
thousands).
As of December 31, 2002 and 2001, the net interest receivable and payable netted by the same
counter-parties was net interest payable of NT$18,100 thousands (US$521 thousands) and
NT$21,008 thousands (US$600 thousands), respectively, which was recorded as accrued expenses.
The counter-parties to the swap transactions are international financial institutions with excellent
reputations. Management believes that the risk of loss due to non-performance of the counter-parties is
remote.
(b) Forward contracts
The Company entered into forward contracts to hedge the risk of changes in exchange rates of foreign
currency receivables and payables. As of December 31, 2002 and 2001, those contracts resulted in a
net exchange loss of NT$4,783 thousands (US$138 thousands ) and net exchange gain of NT$22,012
thousands (US$651 thousands), respectively, which was reported as exchange loss (gain). As of
December 31, 2002 and 2001, all forward contracts had matured.
60
The counter-parties to the forward transactions are international financial institutions with excellent
reputations. The Company has the opinion that the possibility of violating the contracts is remote. As a
result, the Company estimated the credit risk to be minimal. In addition, the gains or losses caused by
floating exchange rates will be offset by the exchange gain or loss resulting from the valuation of the
hedged foreign currency assets and liabilities.
(c) Option agreements
For the years ended December 31, 2002 and 2001, the Company entered into several interest rate
and currency option agreements for hedging purposes. The agreements resulted in a net loss of
NT$3,955 thousands (US$114 thousands) and net gain of NT$3,965 thousands (US$117 thousands),
respectively, which was reported as non-operating expenses and losses and as income and gains. As
of December 31, 2002 and 2001, the notional amounts of the outstanding currency option agreements
amounted to US$30,000 thousands and US$60,000 thousands, respectively.
(d) Cross-currency swap agreements
The Company executed the cross-currency swap agreements to hedge the risk of interest rate and
exchange rate fluctuations of long-term loans. These transactions resulted in net interest income of
NT$5,137 thousands (US$152 thousands) for the year ended December 31, 2001, which was
recorded as a reduction in interest expense. As of December 31, 2001, all cross-currency swap
agreements had matured.
There were no such transactions during 2002.
The counter-parties to the swap transactions are international financial institutions with excellent
reputations. Management believes that the risk of loss due to non-performance of counter-parties is
remote.
(e) Fuel price swap agreements
For the years ended December 31, 2002 and 2001, the Company entered into several fuel swap
agreements to hedge the risk of fluctuations in fuel prices, resulting in a net gain of NT$315,016
thousands (US$9,107 thousands) and net loss of NT$222,809 thousands (US$6,588 thousands),
respectively, which was recorded as adjustment of operating costs.
61
(f) Foreign currency swap agreements
The Company entered into foreign currency swap agreements to hedge the exchange rate fluctuation
risks of foreign currency receivables and payables and of identifiable foreign currency commitments.
For the year ended December 31, 2001, the net loss caused by such transactions amounted to
NT$57,812 thousands (US$1,709 thousands), which was reported as exchange loss.
As of December 31, 2001, the transaction contracts had matured. There were no such transactions
during 2002.
The counter-parties to the forward transactions are international financial institutions with excellent
reputations. The Company has the opinion that the possibility of violating the contracts is remote. As a
result, the Company estimated the credit risk to be minimal. In addition, the gains or losses caused by
floating exchange rates will be offset by the exchange gain or loss resulting from the valuation of the
hedged foreign currency assets and liabilities.
The receivables and payables derived from the contracts as of December 31, 2002 and 2001, have
been netted to be recorded as assets or liabilities, and are summarized as follows:
2002 2001
Accout New Taiwan US New Taiwan US
dollars dollars dollars dollars
Other financial assets-current $ 91,093 2,621 - -
Other financial assets-noncurrent 32,526 936 - -
Other financial liabilities-current - - 387,636 11,075
Other financial liabilities-noncurrent 10,654 306 177,175 5,062
(g) Fair value of financial instruments
(i) Non-derivative financial instruments
There were no significant differences between the par value and the fair value for cash, notes and
accounts receivable (including related parties), prepaid expenses, other prepayments, other current
assets, short-term bank borrowings, notes and accounts payable (including related parties), accrued
expenses, unearned revenue, other current liabilities and current portion of long-term loans because of
the proximity of their due dates.
62
The details of other non-derivative instruments as of December 31, 2002 and 2001, are summarized
as follows:
December 31, 2002
New Taiwan dollars US dollars
Par value Fair value Par value Fair value
Assets:
Short-term investments $ 4,006,196 4,006,196 115,286 115,286
Long-term liabilities:
Bonds payable 5,660,000 5,035,071 162,877 144,894
Long-term loans 24,601,499 24,601,499 707,957 707,957
Other installments payable 1,490,147 1,490,147 42,882 42,882
Aircraft payable 18,030,315 18,030,315 518,858 518,858
December 31, 2001
New Taiwan dollars US dollars
Par value Fair value Par value Fair value
Assets:
Short-term investments $ 2,855,573 2,855,573 81,588 81,588
Long-term liabilities:
Bonds payable 6,960,000 5,727,358 198,857 163,639
Long-term loans 30,758,439 30,758,439 878,813 878,813
(ii) Derivative financial instruments
As of December 31, 2002, the fair value of derivative financial instruments was as follows:
December 31, 2002
Agreements Fair value
Interest rate swap agreements US$ (4,081)
Currency option agreements US$ 128
Fuel price swap agreements US$ 3,557
(iii) Methods and assumptions to measure the fair value of financial instruments:
1) The fair value of short-term investments is market value.
2) The fair value of long-term liabilities is the discounted future cash flows, and the discount rates
during 2002 and 2001 were 4.16% and 5.72%, respectively.
3) The fair value of the derivative instruments is based on the receipt or payment if the Company
terminates the contracts on the balance sheet date, and generally includes the unrealized gain or
63
loss of the unexpired contracts.
(18) Transactions with Related Parties
(a) Name and relationship of related parties
Name Relationship with the Company
Evergreen Marine Corp. Major shareholder
Evergreen International Corp. Major shareholder
Uniglory Marine Corp. Major shareholder
(merged with Evergreen International Storage
& Transport Corp. on 1 November 2002)
Evergreen Development Corp. (Note) Investee company of the Company's major shareholders
Evergreen Multi-Service Corp.
(merged with Evergreen Airline Service Corp.
on 30 April 2001) Investee company of the Company's major shareholders
Evergreen Construction Corp. Investee company of the Company's major shareholders
Evermaster Development Corp. Investee company of the Company's shareholders
Ever Voyage Transport Corp. Investee company accounted for by equity method
Evergreen Airline Service Corp. Investee company accounted for by equity method
RTW Air Services(s) Pte. Ltd. Investee company accounted for by equity method
Green Siam Air Services Co., Ltd. Investee company accounted for by equity method
Uni Airways Corp. Investee company accounted for by equity method
Evergreen Sky Catering Corp. Investee company accounted for by equity method
Evergreen Aviation Technologies Corp. Investee company accounted for by equity method
Evergreen Security Corp. Investee company accounted for by equity method
Evergreen Air Cargo Services Corp. Investee company accounted for by equity method
Hsiang-Li Investment Corp. Investee company accounted for by equity method
(Note) Formerly Evergreen E-Service Corp.
(b) Significant transactions with related parties
(ii) Contracts and payables
During 2002 and 2001, the Company engaged related parties to construct its new office building,
a new overhaul shop for training equipment, and a new warehouse, and to install new security
systems for the new office building and for training equipment. The transactions for the years
64
ended December 31, 2002 and 2001, are summarized as follows:
For the year ended December 31, 2002:
New Taiwan dollars
Contract Amount Payable on
Related party Projectpaid paid
December
31, 2002
Evergreen Construction Construction of a new overhaul
Corp. shop for training equipment $ 378,740 374,953 3,787
Evergreen Construction Construction of a new warehouse 233,755 215,565 18,190
Corp.
Evergreen Construction Construction of a new warehouse
Corp. (Note) 2,298 2,068 230
Evergreen Security Installation of a new security system
Corp. for a new warehouse 4,620 4,286 334
Evergreen Security Installation of a new security system
Corp. for training equipment 4,080 4,039 41
$ 623,493 600,911 22,582
US dollars
Contract Amount Payable on
Related party Projectpaid paid
December
31, 2002
Evergreen Construction Construction of a new overhaul shop $10,899 10,790 109
Corp. for training equipment
Evergreen Construction Construction of a new warehouse 6,727 6,203 524
Corp.
Evergreen Construction Construction of a new warehouse 66 60 6
Corp. (Note)
Evergreen Security Installation of a new security system 133 123 10
Corp. for new warehouse
Evergreen Security Installation of a new security system 117 116 1
Corp. for training equipment
$17,942 17,292 650
65
For the year ended December 31, 2001:
New Taiwan dollars
Contract Amount Payable on
Related party Projectprice paid
December
31, 2002
Evergreen Construction Construction of a new office building $204,969 204,969 -
Corp.
Evergreen Construction Construction of a new overhaul shop 378,740 374,953 3,787
Corp. for training equipmen
Evergreen Construction Construction of a new warehouse 181,905 142,465 39,440
Corp.
Evergreen Construction Construction of a new warehouse 2,298 2,068 230
Corp. (Note)
Evergreen Security Installation of a new security system 4,319 4,319 -
Corp. for new office building
Evergreen Security Installation of a new security system 4,080 4,039 41
Corp. for training equipment
Evergreen Security Installation of a new security system 4,620 3,742 878
Corp. for new warehouse
$ 780,931 736,555 44,376
US dollars
Contract Amount Payable on
Related party Projectprice paid
December
31, 2002
Evergreen Construction Construction of a new office building $ 5,856 5,856 -
Corp.
Evergreen Construction Construction of a new overhaul shop 10,821 10,713 108
Corp. for training equipment
Evergreen Construction Construction of a new warehouse 5,197 4,071 1,126
Corp.
Evergreen Construction Construction of a new warehouse 66 59 7
Corp. (Note)
Evergreen Security Corp. Installation of a new security system 123 123 -
for new office building
Evergreen Security Corp. Installation of a new security system 117 115 2
for training equipment
Evergreen Security Installation of a new security system 132 107 25
Corp. for new warehouse
$ 22,312 21,044 1,268
66
(Note) During 2001, the contract was terminated. Payment amounted to NT$2,068 thousands
(US$60 thousands), and according to the contract, the Company has to pay the related
retention money of NT$230 thousands(US$6 thousands).
(ii) Airport ground handling, cleaning, and maintenance
For the years ended December 31, 2002 and 2001, related expenses and payables for airport
ground-handling, cleaning, and maintenance services provided by related parties are summarized
as follows:
New Taiwan dollars US dollars
Related Party TransactionOperating cost or Operating cost or
expenses expenses2002 2001 2002 2001
Evergreen Airline Ground handling service $ 763,287 871,901 22,067 25,781
Service Corp.
Evergreen Multi- Cleaning and maintenance - 31,103 - 920
Service Corp.
Evergreen Aviation Superintending aircraft 15,953 24,086 461 712
Technologies Corp. cleaning and maintenance
Uni Airways Corp. Cabin cleaning and 20,707 17,292 599 511
maintenance
$ 799,947 944,382 23,127 27,924
(iii) Operating leases
For the years ended December 31, 2002 and 2001, the Company entered into operating lease
agreements with related parties to use office premises and aircraft as follows:
New Taiwan dollars US dollars
Related PartyLeased Operating cost or Operating cost or
property expenses expenses2002 2001 2002 2001
Evergreen Office $ 2,869 2,707 83 80
Marine Corp.
Evergreen Aviation Maintenance hangar and 76,409 76,583 2,209 2,264
Technologies Corp. related equipment
Uni Airways Corp. Connecting flight aircraft
and lease aircraft 450,892 324,150 13,035 9,585
$ 530,170 403,440 15,327 11,929
67
The related expenses were recorded as rental costs and expenses.
(iv) Traffic transportation fee
For the years ended December 31, 2002 and 2001, the Company requested Ever Voyage
Transport Corp. to provide transportation services to the Company's employees. Such expenses
for 2002 and 2001 amounted to NT$62,209 thousands (US$1,798 thousands) and NT$60,952
thousands (US$1,802 thousands), respectively, and were recorded as operating costs and
expenses.
(v) Catering service
During the years ended December 31, 2002 and 2001, the Company requested Evergreen Sky
Catering Corp. to provide catering services and employees' lunch services. Such expenses for
2002 and 2001 amounted to NT$692,497 thousands (US$20,020 thousands) and NT$655,907
thousands (US$19,394 thousands), respectively, and were recorded as operating costs and
expenses.
(vi) Commission expenses
For the years ended December 31, 2002 and 2001, the Company signed agreements with related
parties to pay commissions on the sale of airline tickets. The commission expenses for the years
ended December 31, 2002 and 2001, were as follows:
New Taiwan dollars US dollars
2002 2001 2002 2001
Green Siam Air Services Co., Ltd. $ 77,945 55,517 2,253 1,641
RTW Air Services(s) Pte. Ltd. 54,798 47,319 1,584 1,399
Uni Airways Corp. 5,067 9,865 147 292
$ 137,810 112,701 3,984 3,332
(vii) Management consulting service fee
For the years ended December 31, 2002 and 2001, the Company incurred expenses of
NT$19,849 thousands (US$574 thousands) and NT$19,565 thousands (US$579 thousands),
respectively, for management consulting services provided by Evergreen International Corp., and
booked them as operating expenses.
68
(viii)Accommodation expenses
For the years ended December 31, 2002 and 2001, Evergreen International Corp. provided
lodging for the Company's flight crew in Evergreen Laurel Hotels abroad, and charges amounting
to NT$16,141 thousands (US$467 thousands) and NT$14,924 thousands (US$441 thousands)
were recorded as operating costs. Furthermore, the Company used airline tickets to pay for the
related expenses, which were recorded as accounts payable. As of December 31, 2002 and
2001, the related accounts payable was NT$1,569 thousands (US$45 thousands) and NT$7,688
thousands (US$220 thousands), respectively.
(ix) Maintenance expenses
For the years ended December 31, 2002 and 2001, maintenance services for aircraft and engines
provided to the Company by related parties were as follows:
New Taiwan dollars US dollars
2002 2001 2002 2001
Uni Airways Corp. $ 1,526 130 44 4
Evergreen Aviation Technologies Corp. 3,338,022 2,774,743 96,502 82,044
Evergreen Airline Service Corp. 8,638 - 250 -
$ 3,348,186 2,774,873 96,796 82,048
The related expenses were recorded as operating cost.
(x) Business advertising expenses
For the years ended December 31, 2002 and 2001, the Company requested Evergreen
International Corp. to provide some advertisements of Evergreen Vacations or to advertise in
Evergreen Laurel Hotels, etc. The related expenses for 2002 and 2001 were NT$33,475
thousands (US$968 thousands) and NT$3,016 thousands (US$89 thousands), respectively, and
were recorded as operating expenses.
(xi) Security service expenses
For the years ended December 31, 2002 and 2001, the Company requested Evergreen Security
Corp. to provide security sevices amounting to NT$ 41,555 thousands (US$1,201 thousands) and
69
NT$45,584 thousands (US$1,348 thousands), respectively, booked as operating costs and
expenses.
(xii) Warehouse handling services
For the years ended December 31, 2002 and 2001, the Company requested Evergreen Aviation
Technologies Corp. to provide warehouse handling services. Such expenses for the years ended
December 31, 2002 and 2001, amounted to NT$85,918 thousands (US$2,484 thousands) and
NT$87,714 thousands (US$2,594 thousands), respectively, and were recorded as operating costs.
(xiii)Printing expenses
For the years ended December 31, 2002 and 2001, the Company requested Evergreen
International Corp. to provide printing of forms, menus, etc. Such expenses for the years ended
December 31, 2002 and 2001, amounted to NT$73,791 thousands (US$2,133 thousands) and
NT$67,056 thousands (US$1,983 thousands), respectively, and were recorded as operating costs
and operating expenses.
(xiiii)Property transactions
For the years ended December 31, 2002 and 2001, the Company sold inventories amounting to
NT$6,168 thousands (US$177 thousands) and NT$7,211 thousands (US$206 thousands),
respectively, to Evergreen Aviation Technologies Corp.. Furthermore, in 2002, the Company sold
inventories amounting NT$289 thousands (US$8 thousands) to Uni Airways Corp. There were no
such transactions during 2001.
In 1998, Uni Airways Corp. leased back two MD-90 aircraft, which the Company sold to non-
related parties. The amortization of deferred gains resulting from the aforementioned transactions
for the years ended 2002 and 2001 amounted to NT$59,058 thousands (US$1,707 thousands)
each year, and was recorded as non-operating income and gains.
For the years ended December 31, 2002 and 2001, the Company sold ground handling
equipment amounting to NT$14,043 thousands (US$404 thousands) and NT$9,999 thousands
(US$286 thousands), respectively, to Evergreen Airline Service Corp..
(xv) Human resources support services
70
For the years ended December 31, 2002 and 2001, the Company provided human resources
support services for aircraft to Uni Airways Corp. for NT$32,048 thousands (US$927 thousands)
and NT$73,986 thousands (US$2,188 thousands), respectively, and recorded it as a reduction in
operating costs.
For the years ended December 31, 2002 and 2001, the Company provided Uni Airways Corp.
human resources support services for electronic data processing and ticket auditing for
NT$37,925 thousands (US$1,096 thousands) and NT$51,333 thousands (US$1,518 thousands),
respectively, which were recorded as operating revenue.
(xvi)Spare parts lease
For the years ended December 31, 2002 and 2001, the Company leased out rotable parts to
Evergreen Aviation Technologies Corp. for NT$160,390 thousands (US$4,637 thousands) and
NT$83,090 thousands (US$2,457 thousands), which were recorded as operating revenue.
(xvii)Financial loan
The Company's financing to a related party was as follows:
During the year ended December 31, 2001
Maximum balance Ending balance Interest revenue
New TaiwanUS dollars
New TaiwanUS dollars
Interest New TaiwanUS dollars
dollars dollars rate dollars
Uni Airways Corp. $400,000 11,429 - - 6.60% 12,196 361
There were no such transactions during 2002.
(xviii)Guaranty
As of December 31, 2002 and 2001, the Company provided a guaranty for Uni Airways Corp.
amounting to NT$80,000 thousands (US$2,302 thousands) and NT$300,000 thousands
(US$8,571 thousands), respectively.
(xviiii)The abovementioned transactions with related parties were made with no significant difference
from those with non-related parties, but sometimes the payments were overdue. Receivables and
71
payables as of December 31, 2002 and 2001, resulting from the aforementioned transactions are
summarized as follows:
New Taiwan dollars US dollars
2002 2001 2002 2001
Accounts receivable-related parties:
Uni Airways Corp. $ 30,050 25,049 865 716
Evergreen Aviation Technologies Corp. 4,004 83,102 115 2,374
Others 310 188 9 5
34,364 108,339 989 3,095
Other receivables-related parties:
Uni Airways Corp. $ 171,506 225,849 4,935 6,453
Evergreen Airline Service Corp. 128 11,663 4 333
Evergreen Aviation Technologies Corp. 114,180 91,631 3,286 2,618
Others 5,719 4,436 164 127
291,533 333,579 8,389 9,531
Total receivables-related parties $ 325,897 441,918 9,378 12,626
Accounts payable-related parties:
Evergreen Airline Service Corp. $ 68,262 124,427 1,964 3,555
Evergreen Sky Catering Corp. 55,718 33,304 1,603 952
Uni Airways Corp. 56,431 31,620 1,624 904
Evergreen Air Cargo Services Corp. 20,079 - 578 -
Evergreen Aviation Technologies
Corp. 62,085 44,360 1,787 1,267
Green Siam Air Services Co., Ltd. 7,957 3,934 229 112
RTW Air Services (s) Pte., Ltd. 5,534 7,558 159 216
Others 4,164 16,099 120 460
280,230 261,302 8,064 7,466
Other payables-related parties:
Evergreen International Corp. 13,707 5,999 395 171
Evergreen Construction Corp. 3,976 26,501 114 757
Evergreen Airline Service Corp. 91,262 30,403 2,626 869
Ever Voyage Transport Corp. 4,530 1,315 130 38
Evergreen Air Cargo Services Corp. 18,432 - 530 -
Evergreen Aviation Technologies 218,846 311,650 6,298 8,904
Corp.
Evergreen Sky Catering Corp. 43,570 24,412 1,254 698
Uni Airways Corp. 41,901 30,205 1,206 863
Others 350 8,084 10 231
436,574 438,569 12,563 12,531
Total payables-related parties $ 716,804 699,871 20,627 19,997
72
(19) Pledged Assets
As of December 31, 2002 and 2001, the book values of the pledged assets were as follows:
New Taiwan dollars US dollars
Pledged assets Object 2002 2001 2002 2001
Land Long-term loans $ 1,864,122 1,864,122 53,644 53,261
Buildings Long-term loans 2,862,622 2,963,359 82,378 84,667
Aircraft Long-term loans 47,678,237 46,123,889 1,372,035 1,317,825
Engines Long-term loans 1,702,064 1,835,326 48,980 52,438
Time deposit-included Customs duty and 614,198 208,632 17,675 5,961
in other assets contract guarantees
$ 54,721,243 52,995,328 1,574,712 1,514,152
(20) Commitments and Contingencies
(a) As of December 31, 2002, the outstanding contracts for purchases of aircraft were as follows:
Entering date Type of aircraft Quantity Total price of contrac Prepayments
June 2000 B-777 7 US$ 1,260,851 NT$ 490,523
(US$14,116)
March 2001 A330-200 2 US$ 234,269 NT$ 459,129
(US$13,212)
The prepayments were recorded as advances for purchases of equipment.
The Company entered into aircraft lease contracts with GECAS for eight A330-200 Airbus aircraft.
According to the contracts, the lease term will begin from 2003. The future lease payables of each
year are as follows:
Year due New Taiwan dollars US dollars
2003 $ 318,658 9,170
2004 1,320,153 37,990
2005 2,025,751 58,295
2006 2,185,080 62,880
$ 5,849,642 168,335
(b) As of December 31, 2002, the Company had issued a total of NT$14.8 billion (US$426 million) in
73
promissory notes to banks for obtaining guarantees for fuel purchases and credit lines. As of
December 31, 2002, the Company had obtained guarantees from First Commercial Bank and Chang
Hwa Commercial Bank amounting to US$8 million for purchases of fuel.
(c) As of December 31, 2002, the Company's major lease contracts were as follows:
Leased Object Lessor Lease Amount Lease Period Refundable DepositAircraft Wells Fargo Bank US$550 thousands July 1998 to US$2,070B767-300 Northwest, National per month March 2004(N601EV) AssociationAircraft Wells Fargo Bank US$550 thousands August 1998 to US$2,070B767-300 Northwest, National per month April 2004(N602EV) Association Aircraft Fully Leasing NT$116,500 thousands May 2001to US$20,969B747-400 Company Ltd. (US$3,353 thousands) May 2006(B-16403) per quarterAircraft Forth Leasing US$7,970 thousands per June 2001to US$12,623B747-400 Company Ltd. six months June 2006(B-16405)Aircraft Achieve Leasing US$6,010 thousands per October 2000 to US$25,961B747-400 Company Ltd. six months April 2008(B-16408)Aircraft Fuyo Leasing NT$112,000 thousands October 2000 to US$28,538B747-400 Company Ltd. (US$3,223 thousands) October 2007(B-16409) per quarterAircraft Wells Fargo Bank US$5,500 thousands per September 1999 to US$23,550MD-11 Northwest, National six months March 2007(N105EV) AssociationAircraft Chailease Finance US$2,076 thousands December 2002 to US$16,300B767-300 Company per quarter June 2006(B-16603)Aircraft Chailease Finance US$2,076 thousands December 2002 to US$16,529B767-300 Company per quarter June 2006(B-16605)Aircraft Chailease Finance US$6,700 thousands December 1992 to US$33,360B747-400 Company per six months December 2007(B-16461)Aircraft Chailease Finance US$5,280 thousands December 2002 to US$26,700B747-400 Company per six months December 2007(B-16465)Aircraft Chailease Finance NT$173,200 thousands June 2002 to US$31,400B747-400 Company (US$4,984 thousands) June 2007(B-16401) per six monthsAircraft Chailease Finance NT$164,000 thousands September 2002 to US$27,600B747-400 Company (US$4,179 thousands) September 2007(B-16402) per six months
74
Aircraft Taipan Overseas Ltd. US$6,110 thousands July 1999 to US$34,730B747-400 per six months January 2007(B-16406)Aircraft China Leasing Co., Ltd. NT$78,800 thousands August 1999 to US$21,720B747-400 (US$2,268 thousands) August 2006(B-16407) per quarterAircraft Chailease Finance US$3,000 thousands April 1998 to US$53,175B747-400 Company per quarter April 2005(B16411)Aircraft Taipan Overseas Ltd. US$5,210 thousands May 1998 to US$44,602B747-400 per six months November 2005(B-16412)Aircraft Taipan Overseas Ltd. US$3,120 thousands October 1998 to US$21,598MD-11F per six months October 2008(B-16110)Aircraft GECAS Aircraft US$880 thousands November 2001 to US$1,760MD-11F Leasing Netherlands per month December 2004(B-16103)Aircraft Chailease Business NT$112,000 thousands November 2001 to US$28,200B747 Company (US$3,223 thousands) November 2006(B-16462) per quarterAircraft Uni Airways Corp. NT$7,600 thousands January 2002 to -MD-90 (US$219 thousands) January 2004(B-17917) per monthAircraft Far Eastern Air NT$21,700 thousands May 2002 to -B757-200 Corporation (US$624 thousands) May 2004(B-27017) per monthAircraft Far Eastern Air NT$21,700 thousands May 2002 to -B757-200 Corporation (US$624 thousands) May 2004(B-27021) per monthAircraft ATLAS AIR US$910 thousands October 2002 to -B747-400 per month October 2003(N416MC)Land at CKS Civil Aviation NT$7,814 thousands October 1990 to -International Administration, (US$225 thousands) October 2010Airport Ministry of per quarter
Transportation and For the period from December 31, 2002,to theCommunications expiration date, the total amount has a
discounted value of NT$201,548 thousands (US$5,800 thousands).
Land at CKS Civil Aviation NT$1,838 thousands February 1995 toInternational Administration, (US$53 thousands) February 2005Airport Ministry of per quarter -
Transportation and For the period from December 31, 2002,to the Communications expiration date, the total amount has a
discounted value of NT$15,038 thousands (US$433 thousands).
75
(d) On June 4, 2002, according to the procedures for providing a guaranty to others, the board of
directors made a decision to issue promissory notes for Uni Airways Corp.'s renewal of the NT$80
million loan with Taipei Commercial Bank.
(21) Segment Financial Information
(a) Diversified industry-the Company mainly operates an international air transportation business.
(b) Geographic area information:
New Taiwan dollars US dollars
2002 2001 2002 2001
South East Asia:
Operating revenue $ 19,673,030 14,291,149 568,749 422,565
Income from operations $ 1,579,247 214,367 45,656 6,338
Identifiable assets $ 674,129 816,215 19,400 23,321
North America:
Operating revenue $ 9,525,885 8,528,515 275,394 252,174
Income from operations $ 764,688 127,928 22,107 3,782
Identifiable assets $ 368,664 1,436,124 10,609 41,032
Other foreign areas:
Operating revenue $ 8,076,407 6,100,639 233,490 180,386
Income from operations $ 648,330 91,510 18,744 2,706
Identifiable assets $ 294,932 320,287 8,487 9,151
Domestic:
Operating revenue $ 27,302,085 23,531,152 789,306 695,776
Income from operations $ 2,191,667 354,186 63,362 10,473
Identifiable assets $ 103,994,922 100,745,657 2,992,660 2,878,447
Total operating revenue $ 64,577,407 52,451,455 1,866,939 1,550,901
Income from operations $ 5,183,932 787,991 149,869 23,299
Investment gain (loss), net 141,376 (430,253) 4,087 (12,722)
Interest expenses (2,907,829) (3,642,359) (84,066) (107,698)
Profit before income tax $ 2,417,479 (3,284,621) 69,890 (97,121)
Total identifiable assets $ 105,332,647 103,318,283 3,031,156 2,951,951
Long-term equity investments 10,180,526 10,083,666 292,964 288,105
Total assets $ 115,513,173 113,401,949 3,324,120 3,240,056
76
(c) Major customer information - The Company operates an air transportation business with no
specific major customers.
(d) Export sales information - The main business of the Company is international air
transportation services. Consequently, it is not practical
to separate export and domestic sales.
(22) Reclassification
Certain amounts of the financial statements for the year ended December 31, 2001, have been reclassified
to conform with the presentation of the financial statements for the year ended December 31, 2002, for
purposes of comparison. These reclassifications do not have a significant impact on the financial
statements.
EVA Airways Corporation
376 Hsin-nan Rd. Sec. 1 Luchu, Taoyuan Hsien, Taiwan
Tel: 886-3-3515151
Internet Address:http://www.evaair.com
Taipei Office
117 Sec.2, Chang-an E. Rd., Taipei, Taiwan
Tel: 886-2-85002345
Spokesman
Kuo-Wei Nieh
Senior Vice President, Public Relations & Advertising Division
Tel: 886-2-25001122
e-mail:[email protected]
Auditors
KPMG
6F, 156, Sec.3, Min-sheng E. Rd., Taipei, Taiwan
Tel: 886-2-27159999
Internet Address:http://www.kpmg.com.tw
Financial Calendar
Year ended 31st December 2002
